Anyone dealt with these before - either individually or wrapped in a product? If so, any input on some of their drawbacks/advantages would be appreciated. TIA.
I thought this was gonna be about champagne
Well I’m glad you asked: “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.” http://www.global-derivatives.com/docs/ValuationOfCliquetOptions_Shparber_Resheff_2004.pdf
Art - Touche, not really what I was getting at though. Mainly I’m interested in some of the hidden risks or operational difficulties, things like: Which dealers have you worked with and were they easy to deal with? What valuation assumptions were used and did that provide any conflict with the counterparty at any point during the process? How best to determine counterparty/credit risk throughout the process? What was the catalyst for choosing this instrument? AM - It can be. Given $10MM would you spend it on cliquets or cliquot? I know my answer.