Risk Management Of Quanto Put Option Bassed On Value At Risk

With the growth investment of globalization, the theory and practice of derivativesecurities have been developed very fast all over the world. The quanto derivativesecurities have gained wider development. The payoff of quanto options not onlydepends on the price of foreign asset, but also is influenced by the exchange rate risk.The investment institutions and investors will face more risk when they use quantooptions. Risk management for quanto options is of great significance.When a domestic company holds the foreign risk assets, and hedges with putoptions, the options used to hedge namely for quanto options. This paper focuses onthe manage VaR (Value at Risk) udnder this condition. Considering the exchange ratesystem mainly including fixed exchange rate system and the floating exchange ratesystem, our main consideration is the optimal risk management by hedging with thequanto option under a fixed exchange rate sysitem. In this paper, our works are asfollows:1. Under the codition of risk assets dividend paid on the consecutive terms, weprovide an expression of the Value-at-Risk and the method of choosing the optimalstrike price of the options.2. We make a comparative statics analysis to the optimal strike price, the resultsshow that the optimal strike price is independent of the level of expense the institutionis willing to incur for its hedging program, and depends on the distribution of the assetexposure, the horizon of the hedge, and the level of protection desired by theinstitution.Through the study of this paper, we find that the application of the method in thispaper would reduce the stock risk and exchange rate risk for domestic investors in thecourse of purchasing foreign stocks. Ttherefore, these research results are of greatlytheoretical and practical significance.