Managing Value At Risk By Hedging With The Quanto Options

With the penetration of global economic integration and financial integration, Quanto Options had been applied and developed widely. The investment institutions and investors will face more risk, therefore, the study on the VaR risk management by hedging with the Quanto Options is of great theoretical and practical significance.In This paper, we studied on the VaR risk management by hedging with the Quanto Options, and provide a method for the choice of the optimal strike price of the options, to reduce the VaR as far as we can. The study is of great theoretical and practical significance.This paper will make improvement based on the Value at Risk management method of European put options, study the Quanto Options hedging under a fixed exchange rate, The paper will pay more attention to discuss the situation which company could provide large hedging amount and increase the condition of dividend paid on the consecutive terms, and under these circumstances, discuss the Value at Risk expression and how to choose the optimal strike price of the options. and make numerical verification and comparative static analysis to the conclusion. As can be seen, the application of this method would reduce the stock risk and exchange rate risk for domestic investors in the course of purchasing foreign stocks, and therefore, these research and results are meaningful.The paper consists of four following parts.In the first chapter, the research background and general framework were introduced.The second chapter introduced the assumption on the European Options complete markets, the pricing formula of the Quanto Options and the basic idea of VaR risk management methods.The third chapter described the VaR risk management by hedging with the European Options.In the fourth chapter, we studied on the VaR risk management by hedging with the Quanto Options, discuss the Value at Risk expression and how to choose the optimal strike price of the options. and make numerical verification and comparative static analysis to the conclusion.