The Research On The Binominal Pricing Method On Lookback Option

Lookback option is one specific path-dependent kind of exotic options which belong to relatively new financial derivatives. Pricing methods of lookback option are studied lasting for decades. It is very vital to develop a reasonable lookback-pricing model in terms of theory and practice in the case that new financial tools and combinations of financial tools are coming out very soon.Inspired by Terry and Ton’s binomial pricing model for lookback option, I pay my attention to binomial methods. I research and modify their model; meanwhile I discuss the modified model’s results and give my explanation using the concept "information integrity". First of all I introduce some basic and important characteristics of option and lookback option. Then I study the conventional analytic pricing models. By comparing the binomial pricing models for option and lookback option, I find the difference and try to modify the conventional binomial model to make it fix the difference using mathematical methods and economic definition. Then I compare the analytic pricing models and my model, conclude that my discrete model fits the reality better and is more easily computed. I write a matlab program to implement my model.After this is done, I continue to finish the binominal pricing method on European floated-strike lookback option and American lookback option. Now, My binominal method can deal with European fixed/floated-strike lookback option and American lookback option, that is, all kinds of lookback option.Finally, by analyzing the results computed, I bring out the definition "information integrity" and summarize my model’s advantages and disadvantages...