Quanto Forward Contracts And Quanto Barrier Options Pricing Model

With the growth in globalization of investments in recent years, the quanto derivative securities have gained wider popularity. Their payoffs are determined not only by a financial asset price or index in one currency but also by the exchange rate. The payoffs of these quanto derivative securities can be structured in a variety of combinations of linking foreign asset price and exchange rate, thus generating a rich set of choices of investment and hedging opportunities for investors.In this paper, according to the Risk-Neutal pricing theory, the four types of quanto forward contracts where the domestic and foreign interest rates are assumed to be stochastic are derived. In the meantime, four closed-formed solutions to quanto barrier options are obtained by making use of the Martingale pricing Method, so series of reference pricing are provided in practice.This paper is organized as follows:In chapter 1, we simply introduce the origin, objective and the way used of this paper.In chapter 2, we simply recalled several mathematics theorem and some supposition relative to this paper.In chapter 3, Quanto forward contract is classified into four types. Four prices formulas and forward prices for four types of quanto forward contracts where the domestic and foreign interest rate are assumed to be satisfied Hull & White model are derived.In chapter 4,Quanto barrier option is also classified into four types. Four closed-form solutions to quanto barrier options where the domestic and foreign interest rate are assumed to be constant are obtained by making use of the Martingale pricing Method.In chapter 5, conclusion and prospects.