CoachThe quanto adjustment is the change in the asset’s drift when it is priced under the domestic measure with a fixed conversion: , with the volatility of the exchange rate (domestic per foreign unit) and its correlation with the asset. The quanto forward is .
Voorbeelden
Example 17.15 (An index forward paid in another currency)
A foreign index with a forward of 100, volatility 20%, paid one year out at one domestic unit per point. With an exchange-rate volatility of 10% and correlations of , , and , the quanto forward is 101.21, 100.60, 99.40 and 98.81. A simulation of 200 000 paths under the domestic measure with the adjusted drift agrees to 0.005 (Figure 17.4). At a correlation of the at-the-money quanto call is worth 8.29 against 7.97 for the same call settled in the foreign currency.