Quanto: Difference between revisions
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[[Quanto]]s, or "[[quantity adjusting option]]s", are {{tag|derivatives}} in which the underlying exposure is denominated in one [[currency]], but the instrument itself is settled by reference to another currency at a fixed rate determined at the outset of the transaction. Quantos accordingly shield the purchaser from exchange rate fluctuations. | {{a|eqderiv|}}[[Quanto]]s, or "[[quantity adjusting option]]s", are {{tag|derivatives}} in which the underlying exposure is denominated in one [[currency]], but the instrument itself is settled by reference to another currency at a fixed rate determined at the outset of the transaction. Quantos accordingly shield the purchaser from [[FX|exchange rate]] fluctuations. | ||
Essentially, a quanto has an embedded currency forward with a variable notional amount. It is that variable notional amount that give the quantity adjusting option its name. | Essentially, a quanto has an embedded currency forward with a variable notional amount. It is that variable notional amount that give the [[quantity adjusting option]] its name. | ||
Revision as of 10:36, 30 September 2019
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Equity Derivatives Anatomy™
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Quantos, or "quantity adjusting options", are derivatives in which the underlying exposure is denominated in one currency, but the instrument itself is settled by reference to another currency at a fixed rate determined at the outset of the transaction. Quantos accordingly shield the purchaser from exchange rate fluctuations.
Essentially, a quanto has an embedded currency forward with a variable notional amount. It is that variable notional amount that give the quantity adjusting option its name.