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Connecting discrete and continuous lookback or hindsight options in exponential Lévy models

Published online by Cambridge University Press:  01 July 2016

E. H. A. Dia*
Affiliation:
Université Paris-Est
D. Lamberton*
Affiliation:
Université Paris-Est
*
Postal address: Laboratoire d'Analyse et de Mathématiques Appliquées, Université Paris-Est, UMR CNRS 8050, 5 boulevard Descartes, Champs-sur-Marne, 77454 Marne-la-Vallée, France.
Postal address: Laboratoire d'Analyse et de Mathématiques Appliquées, Université Paris-Est, UMR CNRS 8050, 5 boulevard Descartes, Champs-sur-Marne, 77454 Marne-la-Vallée, France.
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Abstract

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Motivated by the pricing of lookback options in exponential Lévy models, we study the difference between the continuous and discrete supremums of Lévy processes. In particular, we extend the results of Broadie, Glasserman and Kou (1999) to jump diffusion models. We also derive bounds for general exponential Lévy models.

Type
General Applied Probability
Copyright
Copyright © Applied Probability Trust 2011 

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