Can any tell me some thing abt the hedging of cliquet.?.. I searched the post about cliquet , but not much metion to the hedging...Many thanks in advance!

If you are talking about a cliquet with global + local caps and floors the way you hedge would depend on the way you price these cliquets in the first place If you use a stochastic vol model such as Heston you could always try to parameter hedge i.e. buy and sell Europeans or variance swaps to flatten your sensitivity to the Heston parameters. Ofcourse this is fraught with difficulties in practice due to instabilities in the calibration on a day to day basis etc.

thanks

Vol of vol must be handle with care !Some French bank experienced dramatic losses due to model misconception ...

really? I heard an american bank suffered infamous losses on a certain type of cliquet structure called "napoleon"...perhaps that was a trojan horse from the french banks...e.

Definitely !

one thought about cliquet hedging - imagine we are talking about a vanilla cliquet, uncapped. let's imagine a one year monthly cliquet of calls, so one spot start call and 11 forward start calls.in a way this has some of the properties of a variance swap. a variance swap always has a vega, no matter where the spot goes. you could in principle trade a one year variance swap with monthly settings, and this would probably act very much the same as a cliquet. in fact the payoff function of a variance swap can be viewed as a "power cliquet". as each setting looks like [ ( S(ti) - S(ti-1) ) / S(ti-1) ]^2 you can see the analogy. it is a cliquet of straddles with a "squared" payoff!so maybe the best vol hedge for a cliquet of this type is a variance swap? (or a vol swap?)for a cliquet of call spreads of course you have got a sort of supercharged skew position, like a skew swap would have if you could deal it.for a globally floored, locally capped cliquet ... hmmm ...

Check the paperhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=807965http://papers.ssrn.com/sol3/papers.cfm?abstract_id=844484It may be helpful. The second one is about exotics.list

list: are you the author?