The ratchet structure: improving with the market

PROBLEM: Clients who have the freedom to choose whether to hedge using forwards or run the spot risk, hoping to benefit from favourable moves, have often decided to use strips of knockout forwards as an alternative. The decision is the logical result of the client taking a view that spot has an attractive chance of remaining above the knockout barrier without significantly exceeding the strike at expiry time, thereby securing a better transaction rate than either spot or forwards would have

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