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Path-dependent game options: a lookback case

Author

Listed:
  • Peidong Guo
  • Qihong Chen
  • Xicai Guo
  • Yue Fang

Abstract

The game option, which is also known as Israel option, is an American option with callable features. The option holder can exercise the option at any time up to maturity. This article studies the pricing behaviors of the path-dependent game option where the payoff of the option depends on the maximum or minimum asset price over the life of the option (i.e., the game option with the lookback feature). We obtain the explicit pricing formula for the perpetual case and provide the integral expression of pricing formula under the finite horizon case. In addition, we derive optimal exercise strategies and continuation regions of options in both floating and fixed strike cases. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Peidong Guo & Qihong Chen & Xicai Guo & Yue Fang, 2014. "Path-dependent game options: a lookback case," Review of Derivatives Research, Springer, vol. 17(1), pages 113-124, April.
    • Handle: RePEc:kap:revdev:v:17:y:2014:i:1:p:113-124
    DOI: 10.1007/s11147-013-9092-6
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    References listed on IDEAS

    as
    1. Andreas Kyprianou, 2004. "Some calculations for Israeli options," Finance and Stochastics, Springer, vol. 8(1), pages 73-86, January.
    2. Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
    3. Baurdoux, Erik J. & Kyprianou, Andreas E., 2004. "Further calculations for Israeli options," LSE Research Online Documents on Economics 23916, London School of Economics and Political Science, LSE Library.
    4. Christoph Kühn & Andreas E. Kyprianou, 2007. "Callable Puts As Composite Exotic Options," Mathematical Finance, Wiley Blackwell, vol. 17(4), pages 487-502, October.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Guo, Peidong & Zhang, Jizhou & Wang, Qian, 2020. "Path-dependent game options with Asian features," Chaos, Solitons & Fractals, Elsevier, vol. 141(C).

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    More about this item

    Keywords

    American options; Lookback game options; Callable feature; Path dependent; G13;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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