Lookback options have payoffs that
A) depend in part on the minimum or maximum price of the underlying asset during the life of the option.
B) only depend on the minimum price of the underlying asset during the life of the option.
C) only depend on the maximum price of the underlying asset during the life of the option.
D) are known in advance.

Question

Quizplus · Accepted Answer

Lookback options have payoffs that depend on the maximum or minimum price of the underlying asset during the life of the option, allowing the holder to "look back" at the price action of the asset to determine the payoff. This feature distinguishes them from standard options, whose payoffs depend on the asset's price at expiration or at specific points in time.

Lookback Options Have Payoffs That