Class QuantoOption

java.lang.Object
com.quantfinlib.pricing.QuantoOption
public final class QuantoOption extends Object
QUANTO adjustment — for payoffs on a foreign asset settled in domestic currency at a FIXED conversion rate (a Nikkei option paying in USD at 1:1). The buyer bears no FX risk, but the HEDGER does: the delta hedge lives in the asset's own currency, so the hedge P&L converts at a floating rate that is CORRELATED with the asset. That correlation has a price, and it shows up as a drift correction: 
  F_quanto = S · e^{(r_dom − q − ρ·σ_S·σ_FX)·T}

Sign intuition (the classic exercise): ρ here is the correlation between the asset and the FX rate quoted as DOMESTIC PER FOREIGN. Positive ρ means the asset rallies exactly when the foreign currency strengthens — the hedger's foreign-currency losses on the short hedge convert at a worse rate, a systematic drag they charge for, so the quanto forward is LOWER than the vanilla forward. The vol of the quanto payoff stays the asset's own σ_S: only the drift moves.

Implementation is honest about being a change of drift: pricing delegates to BlackScholes with the carry bumped by ρ·σ_S·σ_FX — one line of new math, every Greek and edge case inherited from the tested vanilla pricer. Research lane.

  • Method Summary

    Modifier and Type
    Method
    Description
    static double
    price(BlackScholes.OptionType type, double spot, double strike, double domesticRate, double assetYield, double assetVol, double fxVol, double rho, double timeYears)
    Quanto vanilla priced in domestic currency per unit of the fixed conversion rate: Black-Scholes with the carry shifted by ρ·σ_S·σ_FX.
    static double
    quantoForward(double spot, double domesticRate, double assetYield, double assetVol, double fxVol, double rho, double timeYears)
    The quanto-adjusted forward (domestic-settled, fixed conversion).

    Methods inherited from class java.lang.Object

    clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

  • Method Details

    • quantoForward

      public static double quantoForward(double spot, double domesticRate, double assetYield, double assetVol, double fxVol, double rho, double timeYears)
      The quanto-adjusted forward (domestic-settled, fixed conversion).

    • price

      public static double price(BlackScholes.OptionType type, double spot, double strike, double domesticRate, double assetYield, double assetVol, double fxVol, double rho, double timeYears)
      Quanto vanilla priced in domestic currency per unit of the fixed conversion rate: Black-Scholes with the carry shifted by ρ·σ_S·σ_FX.