| Summary: | 碩士 === 國立臺灣大學 === 國際企業學研究所 === 98 === For the valuation of lookback option, this study extend the Dirichlet lattice method suggested by Kuan and Webber (2003a). Kuan and Webber (2003a) describe a Dirichlet lattice method using the conditional hitting time distribution of the underlying asset price. In this method, the possible maximum stock prices and corresponding probabilities are estimated in every time step between observations, resulting in significant improvement in accuracy. With the framework of one-state variable binomial lattice model, the result of continues-sampled lookback option prices can converge to efficiently the closed-form solution derived by Conze and Viswanathan (1991). Compared to CRR model, this method can get more accurate result with much fewer time steps. All these merits make the method an important addition to the existing tools.
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