Cliquet decomposition payoff question

mdrand · May 15th, 2012, 3:24 pm

Hi,I have a basic decomposition question regarding the payoff of locally floored, globally capped cliquets.The payoff of such a product is defined as :I see this being decomposed as :Could somebody take me through the min and max decomposition. Any hints/references will be greatly appreciated.Thx

Alan · May 16th, 2012, 12:21 am

First apply max(A,B) = A + max(0,B-A); then apply min(C,D) = D - max(0,D-C)

BramJ · May 16th, 2012, 12:26 am

Just applyMax(A,B) = A + Max(0,B-A)Min(A,B) = -Max(-A,-B)Edit: crossed posts with Alan

mdrand · May 17th, 2012, 9:23 am

Thats straight forward. Thanks for your help