Cliquet options are financial derivative contracts that provide a guaranteed minimum return in exchange for capping the maximum return over the life of the contract. Cliquets are appealing to investors because they can protect against downside risk. FINCAD provides functions to value several different types of cliquet options.

The basic assumption is that the underlying index follows a Black-Scholes lognormal model with a constant volatility or a time-dependent deterministic volatility curve. Most cliquet options have payoffs of one of the following four types: Cliquets with both local and global floors.

Cliquets with global floors but no local floor. Cliquets with local floors but no global floor. Cliquets with neither local nor global floor. Most of the cliquets are call options with a strike price of 0. Calculates by Monte Carlo simulation fair value and risk statistics of a cliquet option with periodic sampling dates.

The accuracy of the fair value is also provided. Calculates by Monte Carlo simulation fair value and risk statistics of a cliquet option with free-style sampling dates. It is a threshold of the underlying return. In determining the payoff component of a cliquet at a sampling date the difference of the underlying return and the exercise price is used.

For most cliquets the exercise price is 0. Type of cliquets, a switch. The four values of the switch correspond to the four types of cliquets given above. Historical price list or price return table. It can be of two types: A a single entry of a historical coupon. This is the coupon calculated from historical asset returns up to, including, the valuation date.

B an historical price table which will be used to calculate a cumulative historical coupon. Note that since missing data are not handled in the function, the price list must be complete — one positive price at each historical sampling date. In function aaCliquet, sampling dates are not adjusted for weekends. If a sampling day falls on a weekend, the price on the closest prior business day should be used.

It can be a single-entry of risk-free rate or a discount factor curve.

See note in the function reference page for details. For a call the underlying price return minus the exercise price is used to determine the payoff component at a sampling date; for a put the exercise price minus the underlying price return is used.

A single-entry array of number of random trials. If this parameter is an integer then a different random number seed is used each time the function is called.

If this parameter is not an integer then the same random number seed is used each time, and the results will be the same each time.

Output type, a switch. There are two output types. The difference is on the risk statistics. Otherwise, the risk statistics are the so-called dollar risk statistics — no assumption is made on the notional amount. For example, if the option value is 3.

Cliquet Options: Pricing and Greeks in Deterministic and Stochastic Volatility Models by Peter den Iseger, Emöke Oldenkamp :: SSRN

For details about the calculation of Greeks, see the Greeks of Options on non-Interest Instruments FINCAD Math Reference document. The cliquet was effective on Jan. Call aaCliquet with a random trial number of Using a decimal value for the number of trials means that the same random number seed is used each time, so the results will always be as given below.

Price at last sampling date. Suppose in Example 1 the effective date is Jan. To value the cliquet historical performances of the underlying index must be considered. Suppose the historical prices on the three past sampling dates are given as in the following table: Then call function aaCliquet with the following inputs.

Scaling factor of underlying return. Volatility or volatility table. The details of the calculation is given in the following table. Calculation of Cumulative Historical Coupon.

The cumulative historical coupon is 0. In no event shall FINCAD be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of this document or the information contained in it. This document should not be relied on as a substitute for your own independent research or the advice of your professional financial, accounting or other advisors.

This information is subject to change without notice.

Cliquet option - Wikipedia

FINCAD assumes no responsibility for any errors in this document or their consequences and reserves the right to make changes to this document without notice. Return calculation type, a switch: See above for definitions.

Cliquet option | The Financial Engineer

A constant volatility or a time-dependent volatility table. Interpolation method, a switch. Option type, a switch: Sampling frequency, a switch.