IDEAS home Printed from https://ideas.repec.org/h/wsi/wschap/9789814273473_0012.html
   My bibliography  Save this book chapter

Quanto Pre-washing for Jump Diffusion Models

In: Recent Advances In Financial Engineering

Author

Listed:
  • Hoi Ying Wong

    (Department of Statistics, The Chinese University of Hong Kong, Hong Kong)

  • Ka Yung Lau

    (Department of Treasury Risk, Fubon Bank Hong Kong, Hong Kong)

Abstract

A quanto option is a derivatives security whose value depends on an exchange rate (domestic over foreign) and a foreign asset. Usually, the stochastic process of the exchange rate is given under the domestic risk-neutral measure whereas that of the foreign equity is defined under the foreign risk-neutral measure. As quanto options are quoted in the domestic currency world, the valuation requires the quanto pre-washing procedure which identifies the process of the foreign asset under the domestic risk-neutral measure and that of the domestic equivalent asset (the product of the exchange rate and the foreign asset value) under the domestic risk-neutral measure. This paper investigates the quanto pre-washing for the exchange rate and the foreign asset both following jump diffusion models with correlated Brownian motion component, common jumps and possibly dependent jump sizes. The use of the results is illustrated with the Merton jump diffusion model.

Suggested Citation

  • Hoi Ying Wong & Ka Yung Lau, 2009. "Quanto Pre-washing for Jump Diffusion Models," World Scientific Book Chapters, in: Masaaki Kijima & Masahiko Egami & Kei-ichi Tanaka & Yukio Muromachi (ed.), Recent Advances In Financial Engineering, chapter 12, pages 219-230, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814273473_0012
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/pdf/10.1142/9789814273473_0012
    Download Restriction: Ebook Access is available upon purchase.
    File URL: https://www.worldscientific.com/doi/abs/10.1142/9789814273473_0012
    Download Restriction: Ebook Access is available upon purchase.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:wschap:9789814273473_0012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscientific.com/page/worldscibooks .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.