Investments, tenth edition

  Lookback Options 

 Lookback options have payoffs that depend in part on the minimum or maximum price 

of the underlying asset during the life of the option. For example, a lookback call option 

might provide a payoff equal to the  maximum  stock price during the life of the option 

minus the exercise price, instead of the  final  stock price minus the exercise price. Such an 

option provides (for a price, of course) a form of perfect market timing, providing the call 

holder with a payoff equal to the one that would accrue if the asset were purchased for  X  

dollars and later sold at what turns out to be its high price.