easy · Quantitative Finance derivatives
A 'lookback' option is described as having 'hindsight' because:
- The payout is determined by a panel of market experts reviewing conditions after the fact.
- It continuously adjusts the volatility input fed into the pricing model based on realized historical volatility.
- It remains tradable and can technically still be exercised even after its stated expiration date has passed.
- It allows the holder to effectively 'buy at the low' or 'sell at the high' of the observed price path.
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