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A cliquet option or ratchet option is an exotic option consisting 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. [edit] ExampleA three year cliquet with reset dates each year would have three payoffs. The first would payoff at the end of the first year and has the same payoff as a normal 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. [edit] References[edit] External links
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