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Contract Description 

The early market in cliquet options featured vanilla contracts that were simply a series of forward starting ATM options. 

Rubinstein provided pricing formulae for forward-start options in a BS framework resulting in BS pricing for vanilla cliquets. 

The current market for cliquet options accomodates a rich variety of features. 

 

The most actively traded cliquets are return-based products that accumulate periodic settlement values and pay a CF at maturity. 

The return characteristics and the price appeal of a cliquet can be tailored by adding caps and floors to the period returns and by introducing a strike moneyness factor different from one. 

 

Defining the ith settlement value R, we have: Cliquet 1

The payoff at maturity is then given by: Cliquet 2

 

The investor forgoes returns above the local cap and is protected against returns below the local floor. 

 

 

 

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