A variant on American option, and a perpetual lookback option without a predetermined expiration date (and hence the other name: perpetual American lookback option). Its main advantage is that it guarantees a minimum payout to the buyer. This payout is determined as the discounted maximum price that the option has ever traded at during the undefined life of the option. The Russian option gives the buyer a “reduced regret” if he fails to exercise it at an earlier time when the option was deeper in the money and is more expensive than many of the other options. Settlement of this type of options can be either American or Mid-Atlantic.
The Russian option was originally developed by Shepp and Shiryaev (1993).
