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HiI'm looking for articles on pricing of gap options. Gap means the gap risk inherent in the CPPI technique or in the hedge funds derivatives.Could you help me ?Thanks

In the mkt you can occasionally find quotes like thisSPX 1yrdaily resetting 85% cliquet putexpires if ever in the money0.22 / 0.40very tight...it looks like there is general consensus as for the "true value" of this stuff....don't know whether fair values come from mixed stoch-jump models or gut feeling...

is that 20bp/40bp of notional?when CPPI was first getting popular in structured products ('98-'99) there was no such market. you had to roll deep OTM puts on an exchange. i tried to get a famous reinsurance company to do this and they said "no - it takes us long equity, and we are already that way around from investing premiums in the equity markets". then awhile later they said they would do it for 150bp/ann for the S&P. we stuck to the puts!i heard they are now some of the bigger providers of gap cliquets - is that right?

correct, that's 20/40bps of notional. that quote comes from brokers so behind that there will be some investment bank. I confirm reinsurance and hedge funds are sellers...no idea of volumes though

Hello,I think the Gap option you mention is rather cheap. Even on the S&P (low vol), the market would price at higher level :Ex : Gap Option 3Y SX5E Resetting 82% Cliquet PutEurib3m +20/+30 bpsThe equivalent in terms of % of notional would be in that particular case more than 10% !!I think the pricer must integrate some jump process component to take into account the daily variation of 15% or 18% !!Best regards,

StrikeOut - not sure I understand correctly. A daily 82% cliquet put on SX5E is priced at 3 month Euribor + 30bp??That sound at least 5 times too expensive - or am I misunderstanding?By the way, great photo! Who is she?

Hi erstwhile and StrikOutWas there any further discussion on this matter since this post a few months ago? I would be interested to know if there was any more development on the price. I agree with erstwhile, I think the price should be in the range 50-70 bps flat.