Partial quanto lookback options
- Authors
- Lee, H.[Lee, H.]; Ha, H.[Ha, H.]; Lee, M.[Lee, M.]
- Issue Date
- Jan-2023
- Publisher
- Elsevier Inc.
- Keywords
- Partial monitoring; Quanto extreme expectation; Quanto lookback option
- Citation
- North American Journal of Economics and Finance, v.64
- Indexed
- SSCI
SCOPUS
- Journal Title
- North American Journal of Economics and Finance
- Volume
- 64
- URI
- https://scholarworks.bwise.kr/skku/handle/2021.sw.skku/103545
- DOI
- 10.1016/j.najef.2022.101871
- ISSN
- 1062-9408
- Abstract
- Financial instruments for hedging and speculating on the foreign exchange rate and equity risks draw the attention of market participants as financial transactions increase across multiple jurisdictions. Notably, a quanto lookback option has been actively traded because it successfully meets market demands. Although the quanto lookback option provides numerous benefits, a high premium due to the lookback feature is the primary culprit that hinders investors from purchasing it. This paper proposes partial quanto lookback options and provides the closed-form pricing formulas when the lookback feature is applied to the exchange rate or equity value, and the extremes are determined by observing them for a shorter period than the life of the option. Because pricing the options is challenging due to their partial path-dependence, we develop the quanto extreme expectation that facilitates deriving the option prices. Extensive numerical examples demonstrate the efficacy of the partial quanto lookback options in lowering the premiums. © 2022 Elsevier Inc.
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