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Path-dependent game options: A lookback case

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SSCI ABDC-B

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.

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[Guo, Peidong] Shanghai Univ Engn Sci, Shanghai, Peoples R China

[Chen, Qihong] Shanghai Univ Finance & Econ, Shanghai, Peoples R China

[Guo, Xicai] East China Univ Polit Sci & Law, Shanghai, Peoples R China

[Fang, Yue] Univ Oregon, Lundquist Coll Business, Eugene, OR 97403 USA


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Source

Review of Derivatives Research

ISSN:1380-6645

Year:2014

Issue:1

Volume:17

Page:113-124

Powered by JCR@2014

ESI Discipline:ECONOMICS & BUSINESS;

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