Quanto_Option

More specifically, first the regular cash settlement amount on exercise date is calculated in the currency where the underlying is denominated, also referred as the "foreign" currency.

Next that amount is converted in the final payout currency - also referred as the "domestic" currency - by using a pre-specified fixed exchange rate.

The mathematical formula for the payoff in domestic currency terms of a european call is:

where

An example of a quanto option in the US would be a European call option that grants a US investor the right to buy a share of a German company with a strike of 100 EUR and a pre-specified fixed exchange rate of 1.

Assuming that the German share closes at 110 EUR at expiry, the US investor would receive 10 EUR converted into USD by applying the fixed exchange rate of 1, resulting in a final amount of 10 USD.

The following features are currently not supported by QuantLib:

Bermudan exercise style, discrete dividends/storage costs.

The pricing methodology is specified in Model[Quanto Option]

No QuantLib issues have been identified: