In this article I have explained you about the lookback option with fixed strike.
Lookback Option with Fix Strike
The option’s strike price is fixed as for the standard European options.It differs in a way that at maturity the option is not exercised at the price: the maximum difference between the optimal underlying asset price and the strike is the payoff.
For the call option, the holder opt to exercise at the point when the underlying asset price is at its highest level whereas if we talk about put option the holder opt to exercise at the underlying asset’s lowest price. Respectively for the Lookback call and the Lookback put, the payoff functions are given by:
where the maximum asset’s price is denoted by Smax during the life of the option, minimum asset’s price is denoted by Smin during the life of the option, and strike price is denoted by K.
