A General Approach for Lookback Option Pricing under Markov Models
We propose a very efficient method for pricing various types of lookback options under Markov models. We utilize the model-free representations of lookback option prices as integrals of first passage probabilities. We combine efficient numerical quadrature with continuous-time Markov chain approximation for the first passage problem to price lookbacks. Our method is applicable to a variety of models, including one-dimensional time-homogeneous and time-inhomogeneous Markov processes, regime-switching models and stochastic local volatility models. We demonstrate the efficiency of our method through various numerical examples.
PDF AbstractTasks
Datasets
Add Datasets
introduced or used in this paper
Results from the Paper
Submit
results from this paper
to get state-of-the-art GitHub badges and help the
community compare results to other papers.
Methods
No methods listed for this paper. Add
relevant methods here
