With respect to option contracts and other types of derivatives, it is the period of time during which the holder (the long) is allowed to exercise the contract using the most favorable terms achieved during the contract’s life. This period of time is the entire life of the contract. For example, in a lookback option (which is a path-dependent option) the holder can exercise the option using the best price that has been reached during the option’s life. In case of a lookback call on an index, the holder would receive, at expiration, the difference between the strike price and the highest price the index has reached during the lifespan of the option.
April 27, 2023