December 2015
Intermediate to advanced
522 pages
20h
English
Content preview from Stochastic Volatility Modeling
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Chapter 3
Forward-start options
Before embarking on stochastic volatility, we pause to study the case of forward-
start options – also called cliquets, which we briey touched upon in Section 1.3.
Characterizing the risks of cliquets and how their pricing should be approached
provides precious clues as to which aspects of the dynamics of implied volatilities
are relevant for pricing these (popular) options, and which features of the vanilla
smile a model should be calibrated to.
That cliquet prices are in fact loosely constrained by vanilla smiles is made
plain in Section 3.1.7 where we compute lower and upper bounds on the price of a
forward-start call ...
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