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A quanto option is an option where there are two currencies involved. The payoff is defined in terms of the values of variables measured in the first currency and the payoff is made in the second currency.

Assuming no arbitrage possibilities, to calculate the fair market value of quanto options, one needs:

  1. Tenor of the Option: T
  2. Domestic risk free interest rate: R
  3. Foreign risk free interest rate: Rf
  4. Volatility of the underlyings:
  5. Spot and Strike price of the underlyings:
  6. Volatility of exchange rate:
  7. Spot and Strike of the exchange rate:
  8. Correlation between underlying and exchange rate:

In this calculator, we price both fixed and joint call/put options on a foreign stock index. The interest rates are assumed to be semiannually compounded.

Pricing Models Page Available is a Swing Java Jar File if you just wish to run the models.