A cliquet option or also called ratchet option is name given to an exotic option consisting of a series of consecutive forward start options. The first is active on immediate basis.While the second one becomes active when the first expires, etc. Each option is struck at-the-money when it becomes active.
So we can say that a cliquet is, therefore, a series of at-the-money options but here the total premium is determined in advance. One can consider a cliquet as a series of “pre-purchased” at-the-money options. There are two possibilities that the payout on each option can either be paid at the final maturity, or it can be paid at the end of each reset period.
{ 0 comments }
