Financial Derivatives Toolbox™

lookbackbycrr - Price lookback option from CRR tree

Syntax

[Price, PriceTree] = lookbackbycrr(CRRTree, OptSpec, Strike, Settle, ExerciseDates, AmericanOpt)

Arguments

`CRRTree`	Stock tree structure created by `crrtree`.
`OptSpec`	Number of instruments (`NINST`)-by-`1` cell array of strings `'call'` or `'put'`.
`Strike`	`NINST`-by-`1` vector of strike price values. Each row is the schedule for one option. To calculate the value of a floating-strike lookback option, specify `Strike` as `NaN`.
`Settle`	`NINST`-by-`1` vector of `Settle` dates. The settle date for every lookback is set to the valuation date of the stock tree. The lookback argument `Settle` is ignored.
`ExerciseDates`	For a European option (`AmericanOpt = 0`): `NINST`-by-`1` vector of exercise dates. Each row is the schedule for one option. For a European option, there is only one exercise date, the option expiry date. For an American option (`AmericanOpt = 1`): `NINST`-by-`2` vector of exercise date boundaries. For each instrument, the option can be exercised on any tree date between or including the pair of dates on that row. If only one non-`NaN` date is listed, or if `ExerciseDates` is `NINST`-by-`1`, the option can be exercised between the valuation date of the stock tree and the single listed exercise date.
`AmericanOpt`	(Optional) If `AmericanOpt = 0`, `NaN`, or is unspecified, the option is a European option. If `AmericanOpt = 1`, the option is an American option.

Data arguments are NINST-by-1 vectors, scalar, or empty. Fill unspecified entries in vectors with NaN. Only one data argument is required to create the instrument. The others may be omitted or passed as empty matrices [].

Description

[Price, PriceTree] = lookbackbycrr(CRRTree, OptSpec, Strike,Settle, ExerciseDates, AmericanOpt) calculates the value of fixed- and floating-strike lookback options.

Price is a NINST-by-1 vector of expected option prices at time 0.

PriceTree is a tree structure with a vector of instrument prices at each node.

Examples

Price a lookback option using a CRR binomial tree.

Load the file deriv.mat, which provides CRRTree. The CRRTree structure contains the stock specification and time information needed to price the option.

load deriv.mat;

Set the required values. Other arguments will use defaults.

OptSpec = 'Call';
Strike = 115;
Settle = '01-Jan-2003';
ExerciseDates = '01-Jan-2006';

Price = lookbackbycrr(CRRTree, OptSpec, Strike, Settle, ... 
ExerciseDates)

Price =

    7.6015

References