Cliquet

(redirected from Ratchet Options)
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Cliquet

A series of forward start options in which the first option is active (and its strike price is set) immediately. The second option becomes active on the expiration date of the first option, with the strike set as the market value of the underlying on that day. The process continues for as many options as exist in the cliquet. Importantly, the entire premium is paid at once. Cliquets are useful for an investor who wants to lock in an option for a significant period of time, with the strike price adjusting to reflect market realities. It is also known as a reset option or a ratchet option.
References in periodicals archive ?
The latter are also known as reset strike options or ratchet options, to avoid confusion.
Ratchet options are simply a portfolio of forward starting options, hence they admit perfect static replication, unlike cliquet options (Buetow, 1999; Matosek, 2008).
It must be pointed out that, in the markets, the term "cliquet", when applied to a call option, is sometimes used interchangeably to refer to a ratchet option, whereby the strike price resets at each fixing date to the prevailing stock price while at the same time locking in the performance of the previous period, thus yielding at expiry the following payoff: