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Answer: Floating lookback put
For standard lookback option payoffs: - **Floating lookback call** = $S_T - S_{\min}$ - **Floating lookback put** = $S_{\max} - S_T$ - **Fixed lookback call** = $\max(S_{\max} - K, 0)$ - **Fixed lookback put** = $\max(K - S_{\min}, 0)$ Using the given path: - Floating call = $8.55 - 6.79 = 1.76$ - Floating put = $39.23 - 8.55 = 30.68$ - Fixed call = $39.23 - 30.00 = 9.23$ - Fixed put = $30.00 - 6.79 = 23.21$ The **highest payoff** is from the **floating lookback put**.
Author: Manit Arora
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Q-731.1. Consider the price of an asset that begins at $30.00 and ends, after 20 periods, lower at $8.55. Also highlighted are its maximum ($39.23) and minimum price ($6.79) during this 20-period life:
Among the following choices, which lookback option has the HIGHEST payoff if its life matches the 20-period interval shown?
A
Floating lookback call
B
Floating lookback put
C
Fixed lookback call with strike = $30.00 (matching the initial asset price)
D
Fixed lookback put with strike = $30.00 (matching the initial asset price)
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