For lookback options,
A)the option holder must decide before maturity whether the option is a call or a put.
B)the option holder chooses as the exercise price any of the asset prices that occurred before the final date.
C)the option payoff is zero if the asset price is on the wrong side of the exercise price and otherwise is a fixed sum.
D)the exercise price is equal to the average of the asset's price during the life of the option.

Question

Quizplus · Accepted Answer

Lookback options allow the option holder to choose the exercise price as any of the asset prices that occurred before the final date. This is because the option holder is looking back over the asset's price history to determine the most advantageous exercise price. The other options listed (A, C, and D) do not accurately describe the payoff structure or exercise price determination for lookback options.

For Lookback Options