A financial derivative that converts underlying asset prices into units of the payoff currency (a currency in which the derivative’s payoff is defined in the contract) by applying a certain exchange rate (the quanto factor). Examples of quanto derivatives include quanto options, quanto caps, quanto floors, quanto caplets, quanto floorlets, quanto swaps, quanto futures, quanto forward, and quanto hybrid, among others.
Quanto derivatives may be classified as plain vanilla (quanto option) or exotic products (e.g., a quanto basket option in which one or more of the underlying assets in a basket (known as the quanto basket) are traded at a currency other than the currency denominating its payoff/ payout.
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