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A cliquet option or ratchet option is an exotic option consisiting of a series of consecutive forward start options. The first is active immediately. The second becomes active when the first expires, etc. Each option is struck at-the-money when it becomes active.[1]
A cliquet is, therefore, a series of at-the-money options but where the total premium is determined in advance. A cliquet can be thought of as a series of "pre-purchased" at-the-money options. The payout on each option can either be paid at the final maturity, or at the end of each reset period.
Example
A three year cliquet with reset dates each year would have three payoffs. The first would payoff at the end of the first year has the same payoff as an ATM option.
The second year's payoff has the same payoff as a two year option, but with strike equal to the stock price at the end of the first year.
The third year's payoff has the same payoff as a three year option, but with the strike equal to the stock price at the end of the second year.
References
External links
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