AdvancedNumeric answer
Model a price as an arithmetic Brownian motion with no drift and a normal volatility of a year. A one-year lookback pays the maximum price over the year minus the starting price. With zero rates, what is it worth, to two decimals?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
The worked solution is in Premium
The answer, the full working and the one idea to take away – for this and all 1,322 questions in the bank. Answer it in practice and your working is marked, with a known mistake named when you make one.
Learn the method
Reported in interviews at
More exotics and structured products questions
- In, out and the vanilla, part 1 of 3Foundation
- A vanilla call is worth $8 and the corresponding up-and-in call is worth $3.Applied
- Is an arithmetic-average Asian call worth more or less than the equivalent vanilla?Applied
- A vanilla put is worth $8 and the corresponding down-and-out put is worth $3.Applied
- How does a floating-strike lookback call compare with a vanilla call on the…Applied
- A forward-start call is struck at the money in one year’s time and expires one…Applied