What is a quanto adjustment?

A quantity-adjusting option, also known as a Quanto option, is a cash-settled, cross-currency derivative, where the underlying asset is denominated in a currency other than the currency in which the option is settled. Quanto options come in both call and put varieties.

What is a quanto future?

Quanto Futures and Options Quanto Futures are cash settled Derivatives in which the underlying traded product is denominated in a foreign currency that is settled in another domestic currency at a fixed exchange rate.

What are quanto products?

A quanto is a type of derivative in which the underlying is denominated in one currency, but the instrument itself is settled in another currency at some rate. Such products are attractive for speculators and investors who wish to have exposure to a foreign asset, but without the corresponding exchange rate risk.

What is quanto and compo?

As a quanto option, a compo option is also an option denominated in a currency other than the currency in which the underlying asset is traded. Unlike quanto option, the holder of a compo option has exposure to the FX rate. In a compo option, the payout and the strike are fixed in the compo’s currency.

What is Quanto CD?

Quanto CDS spreads are differences in CDS premiums of the same reference entity but in different currency denominations. Such spreads can arise in arbitrage-free models and depend on the risk of a jump in the exchange rate upon default of the underlying and the covariance between the exchange rate and default risk.

What is a compo option?

An exotic option whose underlying is a foreign asset (like a foreign equity) denominated in either domestic or foreign currencies and struck in either the domestic or foreign currency. The compo option generally belongs to the class of currency-protected options. It is also known as a composite option.

What is an inverse future?

What does inverse mean? Inverse futures just mean that the payoff structure for your position is non-linear. The P&L is calculated so that the profit on the collateral you use matches the denomination of the contract as price adjusts.

What is a composite swap?

An equity-linked swap whereby the equity return is denominated and settled in the currency of the equity market in which the swap is made. For instance, a composite swap may entail the receipt of an equity return denominated in dollar and the payment of financing leg denominated in euro. …

What is a compo swap?

A compo equity swap is an equity swap, in which an investor is exposed to both changes in the value of foreign stock and in the related foreign currency (i.e., a compo swap is financially equivalent to a direct foreign stock investment that is executed in the form of an equity swap).

How do you price a Selectr option?

Calculations made in the article confirmed that if the choice time of contract is the current date the value of a chooser option is equal to the value of the simple call option. If the choice time is equal to one, the chooser value equals the value of a straddle strategy.

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What does it mean to have a Quanto option?

Quanto option. What is it? A quanto (or cross-currency derivative) is a cash settled derivative (such as a future or option) that has an underlier denominated in one (“foreign”) currency, but settles in another (“domestic”) currency at a fixed exchange rate.

How is the value of a Quanto determined?

Reduction of risk encourages participation in these markets. Quantos are settled at a fixed rate of exchange, providing investors shelter from exchange-rate risk. At the time of expiration, the option’s value is calculated in the foreign currency and then converted at a fixed rate into the domestic currency.

Why are quanto products attractive to speculators?

Such products are attractive for speculators and investors who wish to have exposure to a foreign asset, but without the corresponding exchange rate risk. Quantos are attractive because they shield the purchaser from exchange rate fluctuations.

What does a Quanto mean in commodity market?

In these markets, a Quanto is a weather-contingent energy (or commodity) derivative. Weather contingent means that a payoff is triggered if some weather variable (typically temperature, but also precipitation or any other weather variable) crosses (from above or from below) a specified strike value.