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CBOE to offer FLEX Index Options with Asian and Cliquet style settlement

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The Chicago Board Options Exchange (CBOE) plans to offer FLEX index options with Asian and Cliquet style settlement beginning Monday, 21 March. 

FLexible EXchange (FLEX) options, created by CBOE in 1993, are customisable options that allow users to define various contract terms such as exercise style, strike price and expiration date. FLEX options also give investors the opportunity to trade on a larger scale with expanded or eliminated position limits.
Insurance companies that write indexed annuity contracts often have exotic option liabilities embedded within those annuity contracts. Two common types of exotic options are Asians and Cliquets. Insurance companies seeking to hedge embedded exotic option risk have historically traded exclusively in the over-the-counter (OTC) market. The introduction of Asian and Cliquet FLEX index options is expected to provide insurers with an alternative hedging tool to OTC market products, while also providing traditional exchange-traded benefits like enhanced price discovery, transparency and centralised clearing.  
"CBOE is pleased to offer indexed annuity writers with new options-based hedging alternatives," says BOE Holdings President and Chief Operating Officer Edward Provost (pictured). "Transacting on an exchange may provide insurance companies with improved execution prices on their hedges, while simultaneously reducing counterparty risk."

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