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Topic: Quanto option


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  Quanto Option, Diff Swap
Quanto options have both the strike price and underlier denominated in the foreign currency.
At exercise, the value of the option is calculated as the option's intrinsic value in the foreign currency, which is then converted to the domestic currency at the fixed exchange rate.
Pricing a quanto option entails modeling both the underlier and the exchange rate, as well as the correlation between them.
www.riskglossary.com /articles/quanto.htm   (473 words)

  
 Forex Exotic Currency Options Glossary Fx Options Dictionary Foreign Exchange Options
This type of option is generally quite expensive because of the flexibility afforded to the buyer.
The down and in option is the same as the up and in, except the currency has to reach a lower barrier.
Example, if the holder has an in-the-money Nikkei index call option upon expiration, the quanto option terms would trigger by converting the yen proceeds into dollars which was specified at the outset in the quanto option contract.
www.forexdirectory.net /exover.html   (1292 words)

  
 Option style - Wikipedia, the free encyclopedia
In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised.
A deep ITM currency option (FX option) where the strike currency has a lower interest rate than the currency to be received will often be exercised early because the time value sacrificed is less valuable than the expected depreciation of the received currency against the strike.
A quanto option is a cross option in which the exchange rate is fixed at the outset of the trade, typically at 1.
en.wikipedia.org /wiki/Option_style   (1407 words)

  
 Kids.Net.Au - Encyclopedia > Option style   (Site not responding. Last check: 2007-10-12)
The style or family of a financial option is a general term denoting the class into which the option falls, usually defined by the manner in which the option may be exercised.
European options are typically valued using the Black-Scholes or Black 76 formulas.
American options are more difficult to value, and a choice of models are available (for example Whaley[?], binomial options model, Monte Carlo[?] and others).
www.kids.net.au /encyclopedia-wiki/op/Option_style   (200 words)

  
 Types of Options
The buyer of the collar purchases the cap option to limit the maximum interest rate he will pay and sells the floor option to obtain a premium to pay for the cap.
With knockouts, the buyer begins with a vanilla option, however, if the predetermined price barrier is hit, the vanilla option is cancelled and the seller has no further obligation.
The contract gives the buyer the option to execute an interest rate swap on a future date, thereby locking in financing costs at a specified fixed rate of interest.
www.sp.uconn.edu /~jstiver/Eco230/options.htm   (1926 words)

  
 SD Glossary   (Site not responding. Last check: 2007-10-12)
An average strike with knock in option is an average strike option with a
A compound option is an option on an option.
A vanilla quanto is an option in which the underlying is denominated in one...
www.fx-options.net   (3537 words)

  
 quanto option Definition
Option in one currency, but which pays out in another.
Quanto options are usually used in cases when investors are confident of the underlying asset's performance, but are not confident of the performance of the currency which the underlying is denominated in.
Learn about call and put options, the components of an options contract, how to value and price options, and what the advantages and disadvantages of options to help you decide if they are the right investment for you.
www.investorwords.com /4002/quanto_option.html   (171 words)

  
 Derivatives Add-in for Excel for Option pricing, historical volatility, VaR, stock probability and more by Peter Hoadley
Quanto (cross-currency) options: Four functions for valuing regular, single barrier and Asian Quanto options: options on assets denominated in a foreign currency with settlement in the domestic currency at a pre-defined exchange rate.
These powerful functions, which provide valuable information for evaluating American options, and options and warrants with barriers and triggers, are only available in the full version of the add-in.
Options include several different types of data normalization, a choice of using equally weighted or EWMA models for covariance, and two options in the way returns are calculated.
www.hoadley.net /options/develtoolsaddin.htm   (5072 words)

  
 ☞Risk Management Glossary - Finance, Energy, Technology & Statistics
Deltas of deep in-the-money options are approximately equal to one; deltas of at-the-money options are 0.5; and deltas of deep out-of-the-money options approach zero.
These currency options have a guaranteed exchange rate that enable buyers who like the underlying asset, German bonds for example, but not the assets pricing currency, to arrange to be paid in a different currency for a fee.
Swing options have wide application in commodity markets since these options can provide an effective match to underlying exposures where there is uncertainty as to quantity (volumetric risk), however, valuing and trading such options is highly complex quantitatively.
www.risk-glossary.com /index.html   (10453 words)

  
 Global Financial Markets by Ian Giddy: Update (Part 2)   (Site not responding. Last check: 2007-10-12)
Quanto options can be useful to international equity portfolio managers who wish to take a view on share prices in a foreign market, but not on the exchange rate.
A quanto option could be useful to a corporation that plans to buy a fixed amount of a commodity in a foreign market at a certain date in the future.
The proportion of one option we use to hedge another option is determined by the relation between the deltas, the hedge ratios.
pages.stern.nyu.edu /~igiddy/gfmup2.htm   (1762 words)

  
 Quanto Option   (Site not responding. Last check: 2007-10-12)
An option in one country's currency that pays out in another country's currency.
The investor buys an option in the foreign stock while keeping the payout in his or her home currency.
Options Basics Tutorial - An introduction to the world of options, covering everything from primary concepts to how options work and why you might use them.
investrio.investopedia.com /terms/q/quantooption.asp   (91 words)

  
 Treasury Management International :: Research Library - Risk Management   (Site not responding. Last check: 2007-10-12)
Alternatively, the option can be structured to pay the holder the difference between the strike (which is fixed as in a standard option) and the best level of spot seen during the life of the option.
A Quanto Option is an option on a cross-exchange rate with the payout being in a third currency at a guaranteed exchange rate.
A You-Choose Option allows the holder to fix the strike of the option as normal but gives the choice of whether it is a put or call option at a predetermined time before expiration of the option.
www.treasury-management.com /Research/RiskManagement/DMG7.HTM   (1313 words)

  
 UBS - Letter Q
Option with a fixed exchange rate between two currencies at the beginning of the maturity.
When the option is exercised, the premium is paid out in the foreign currency.
Quantos exist solely as a component of another option.
www.ubs.com /1/e/about/bterms/content_q.html   (341 words)

  
 Concepts A-Z
An option whose payout is fixed at the inception of the option contract and for which the payout is only made if the strike price is in-the-money at expiry.
An option whose payout at expiry is determined by the difference between its strike and a calculated average market rate where the period, frequency and source of observation for the calculation of the average market rate are specified at the inception of the contract.
In the case of a knock-in option, the barrier option does not exist until the trigger is touched.
victoryrisk.com /concepts_a-z.htm   (3517 words)

  
 DD Q-T
An option in which the payoff is the greater of zero or the value of a Quanto Forward (q.v.
Definition: An option that involves tangible objects – such as bricks and mortar, pipelines and equipment – rather than financial instruments and cash flows, and physical actions – such as excavation, construction, demolition, physical movement, and hard work – rather than simply tendering notice of the exercise of an option.
An option portfolio consisting of one Call Option and one Put Option, both with the same underlying, direction (long or short), strike, and expiration date.
www.margrabe.com /Dictionary/DictionaryQT.html   (4236 words)

  
 SSRN-Quanto Lookback Options by Min Dai, Yue Kuen Kwok, Hoi Ying Wong
The lookback feature in a quanto option refers to the payoff structure where the terminal payoff of the quanto option depends on the realized extreme value of either the stock price or the exchange rate.
The success of the analytic tractability of these quanto lookback options depends on the availability of a succinct analytic representation of the joint density function of the extreme value and terminal value of the stock price and exchange rate.
The early exercise boundaries of these American quanto lookback options exhibit properties that are distinctive from other two-state American option models.
papers.ssrn.com /sol3/papers.cfm?abstract_id=565107   (334 words)

  
 Quanto Options Pricing
A quanto is an option on an asset denominated in a foreign currency with an associated predeterminded exchange rate.
For example, a quanto call holder would have the right to purchase a foreign stock and have the proceeds converted into local currency at the predetermined exchange rate.
Several inputs in addition to the fl scholes inputs are required.
www.derivativesone.com /kb/quanto_options.aspx   (125 words)

  
 Home Page   (Site not responding. Last check: 2007-10-12)
Quanto, a program to calculate sample size, is available through this website.
Quanto is a 32-bit Windows application requiring Windows 95, 98, NT, 2000, ME or XP to run.
An option is included to create a text file of the log that can be imported into other documents.
hydra.usc.edu /gxe   (178 words)

  
 Glossary of Option Terms: Quanto Option
Used when an investor feels that a stock will do well in another country but that their currency will not.
The option is bought in the foreign stock and the payout is in the home currency.
Options Straddle: Using A Straddle to Harness "Uncertainty"
www.smartoptionsreport.com /glossary/quantooption.html   (142 words)

  
 Savvysoft - A New Spin on Software
Exotics often are composed of several different kinds of options, which makes their payoffs hard to predict without intricate computer technology.
One type of exotic derivative, for example, is a quanto option, in which payments might be based on U.S. interest rates, but actual payouts are in Swiss francs.
While some of these outfits sell programs that can be used to calculate the value of exotic options, none are cheap enough for most of the corporations and money managers that use derivatives, said Charles Wurtz, managing director of Xticket Systems.
www.turboexcel.com /bloomber.htm   (776 words)

  
 DIFX :: Glossary   (Site not responding. Last check: 2007-10-12)
Quantitative analysis is a form of analysis which uses numbers and ratios derived from a company's financials to assess its prospects.
A quanto option is an option designed to address currency risk.
The premium the buyer pays for the option is in the currency of the asset they're investing in, but if the option is exercised, the investor receives any profit in their home (or reference) currency.
www.difx.ae /academy/glossary/q.html   (339 words)

  
 BBC NEWS | Programmes | Working Lunch | Financial terms K - Q
From Knock-out to Quanto (they're both options by the way), it's the K - Q of everything you might want to know about finance.
An option that has reached its expiry date and is now worthless.
An option in one currency which pays out in another.
news.bbc.co.uk /2/hi/programmes/working_lunch/1453134.stm   (1713 words)

  
 Hybrid Instruments (Callable Bonds, Structured Notes, etc.)
They are debt instruments that have an imbedded option allowing the holder to exchange them for shares of the issuing corporation's stock.
For this reason, their market prices tend to be influenced by both interest rates as well as the issuer's stock price.
According to this definition, a quanto option or a volatility future would be considered a hybrid.
www.riskglossary.com /articles/hybrid.htm   (307 words)

  
 [No title]
Calculate the fair value and risk statistics of binary double barrier option with a payoff of a fixed amount of cash when a barrier is hit or no barrier is hit during the option's life time.
The option can be a European or American style call or put (level of barriers may vary with time).
The option can be either European or American style and either a call or a put and the level of the barriers may vary with time.
www.fincad.com /support/v8funref/Index_Opt.htm   (3716 words)

  
 MFJ Volume 7 No 1 & 2
The results show that prior to the 1997 Asian Crisis, forwards are marginally more effective than options synthetic forwards for an ordinary risk-averse exporter to hedge against her/his 1, 3, 6 and 12-month transaction exposures.
However, during and after the 1997 Asian Crisis, options synthetic forwards are more effective than forwards for hedging exposures of 1, 3 and 6 months.
The results of a comprehensive simulation experiment performed on a large test pool of option contracts reveal that the approximations based on the reciprocal gamma and Johnson-type densities are in general the most accurate.
mfs.rutgers.edu /MFJ/Abstracts/V07N12.html   (685 words)

  
 quanto option and Stock Trading at TradeStars + Stock Trading   (Site not responding. Last check: 2007-10-12)
quanto option and stock trading - fab supplies of quanto option by the worlds leading with assorted guides for you too.
Nowadays, most individuals who want to trade use online services, which allow quanto option to place their orders over the Internet.
More recently, a number of spread betting companies have appeared, who a U.S. Senate quanto option subcommittee, former SEC Chairman Arthur Levitt testified that, I am concerned that some stock traders dont fully understand the quanto option level of risk they are assuming.
www.tradestars.com /content/quanto-option.asp   (95 words)

  
 Monis FX Options XL   (Site not responding. Last check: 2007-10-12)
Monis FX Options XL is a powerful collection of routines running within the familiar Excel front end.
Monis FX Options XL is also available as an analytic library for integration with other systems.
In addition to the options price and the full set of Greeks, Monis FX Options XL's outputs also includes break-even, leverage factor, probability of hitting barriers and forward prices.
www.sungard.com /products_and_services/stars/monis/monisfxoptionsxl.htm   (238 words)

  
 FEA - @GLOBAL - Features
A quanto option has all the characteristics of a standard option plus the additional feature of paying off at a fixed conversion factor of currency.
@GLOBAL also values foreign-domestic quanto options, which are similar to standard quantos except the exchange rate is not fixed and the strike is set in units of the underlying accounting currency.
Basket options are valued with either FEA's extremely fast analytic SPAV algorithm or control-variate Monte Carlo simulation.
www.barra.com /products/global/features   (281 words)

  
 Everything you always wanted to know about Option style
at a single point in time An american option on the other hand may be exercised at any time before expiry.
That is because any option has a time value and is therefore worth more unexercised.
Some other styles of options are * Bermudan option (buyer has right of exercise at certain times before maturity according to a pre-agreed schedule) * Asian option (buyer exercises against average strike price) * Quanto option (buyer exercises in different currency)
www.relan.net /Finance_topics/Option_style.html   (298 words)

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