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Forward Shooting Grid

A variant of the lattice tree methods (binomial trees/ trinomial trees) that is used to price a wide stripe of path-dependent options, like lookback options, shout options with reset strikes, Asian options, convertible bonds with reset feature, etc. The forward shooting grid (FSG) involves augmenting an auxiliary state vector (representing the possible values that can be taken by the path-dependent state variable) at each node in the unusual lattice tree, in order to solve the two-dimensional pricing problem embodied in the underlying geometric Brownian motion price and its running extremum (minimum for a call option and maximum for a put option).


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