easy · Quantitative Finance
A lookback call option with a floating strike allows the holder to buy at the minimum price achieved during the option's life.
Why is this exotic option significantly more expensive than a standard vanilla call?
- It settles all payouts in the domestic currency at a pre-agreed fixed exchange rate
- It removes timing risk by effectively exercising at the absolute best price in hindsight
- It is structurally guaranteed to be in-the-money throughout the entire life of the contract
- It carries materially higher gamma exposure than a comparable vanilla call at every point
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