A Cliquet Is Analogous to

question 26

Multiple Choice

A cliquet is analogous to

• A) A portfolio of vanilla options, all at-the-money today, and expiring on the reset dates of the cliquet.
• B) A portfolio of digital options, with one option coming to life at each reset date and expiring at the next reset date.
• C) A portfolio of forward-starts, with one option coming to life at each reset date and expiring at the next reset date.
• D) A portfolio of exchange options, with one option coming to life at each reset date and expiring at the next reset date.

---

Definitions:

Variable Costs

Costs that fluctuate with changes in production volume, including expenses like raw materials and direct labor.

Average Fixed Inspection Cost

A cost that remains constant per unit but varies in total, associated specifically with the inspection process in manufacturing or quality control.

Fixed Inspection Cost

A fixed cost associated with quality inspections that does not change with the level of production or services.

Machine-Hours

Machine-hours represent the total time that machinery is in operation, used as a basis for allocating machine-related costs to products.