A bank issued this product which looks quite normal, but I don't know how to decompose it. Is there any one who can help me?the terms are like this:- it has two years life, which is divided into 8 observation periods;- it is linked to an equity index;- the final payoff is determined as: max(0, average[max(i)-min(i)]), where i represents the 8 periods, and max/min represent the maximum/minimum of underlying index's daily close price during each period.it looks like a lookback call plus a lookback put, but how to deal with the 8 observation periods and average?Thanks

Well one simplication is to remove the overall max(0, ...) since the ... is always non-negative.What remains is an asian-type option, except on the range of the index instead the closing value.I don't think it's going to 'decompose' any further.Then, if your next question is how to value this option, I would study all the approaches to discrete asian options and see if any of the methods could be adapted to whatever model you're going to apply to the index. (GBM, Stoch. Vol., Stoch Vol + jumps, etc.)regards,

Thanks a lot!So I have to code a specific module to price it....