Quanto vs Composite Options

baroda11 · November 25th, 2008, 3:06 pm

What is the difference between a Quanto and a Composite option ?

tw · November 26th, 2008, 11:25 am

Composite's pay out with the floating fx rate, quanto's pay out with a fixed FX rate is my understanding.QuoteOriginally posted by: baroda11What is the difference between a Quanto and a Composite option ?

RiskUser · November 27th, 2008, 9:30 am

Composite OptionQuanto Option

baroda11 · December 1st, 2008, 2:13 pm

This helps, thanks a lot.

plaser · February 5th, 2009, 3:23 am

composite = ADR payout = (Q S- K)^+ where Q is FX ratequanto = payout in fixed exchange rate payout = Q /Q_0 (S-K)^+ Q_0 = fixed exchange ratecomposite changes vol to a basket volquanto leaves vol alone changes drift

PiotrW · November 12th, 2010, 1:34 pm

Hello,Both of them pay out in a diffrent cur from the cur the asset is qouted in.1.quanto also known as "Fixed Exchange Rate on Foreign Asset Option":strike in qoute cur; Qt0 i.e. exchange rate is specified in a TradeDate E. G. Haug, The Complete Guide to Option Pricing Formulas, MCGraw-Hill 1998, s. 104& U. Wystup Quanto Options, MathFinance AG, 2008, s. 5. -> http://www.mathfinance.de/wystup/papers ... .composite option: "Floating Exchange Rate on Foreign Asset Option"strike in Payout cur; Qtm i.e. exchange rate is specified in a MaturityDate (therefore is is called Floating .... )####A.Option ie payout in foreign cur. Now we would like to know the value in domestic cur of that option: goto:http://www.iam.uni-bonn.de/people/ankir ... _eight.pdf pages:20-26Hope it helpsPiotrW

Ezra · November 22nd, 2010, 8:12 am

Quotecomposite changes vol to a basket volInteresting you should say that -- for heavily path-dependent options, the difference in pricing between simulating a composite underlying as a basket and simulating the equity and the FX separately can be quite staggering.

daveangel · November 22nd, 2010, 8:21 am

QuoteOriginally posted by: EzraQuotecomposite changes vol to a basket volInteresting you should say that -- for heavily path-dependent options, the difference in pricing between simulating a composite underlying as a basket and simulating the equity and the FX separately can be quite staggering.really ? I dont think that is right. How are you generating the correlated deviates ?

tw · November 22nd, 2010, 8:47 pm

The interesting question I find about compos vs quantos is are there any arbitrage portfolios between a composite option and options on the underlying option markets in the same form as exist for spread options and baskets? Do any exist for quantos?QuoteOriginally posted by: EzraQuotecomposite changes vol to a basket volInteresting you should say that -- for heavily path-dependent options, the difference in pricing between simulating a composite underlying as a basket and simulating the equity and the FX separately can be quite staggering.

daveangel · November 22nd, 2010, 9:17 pm

Quote The interesting question I find about compos vs quantos is are there any arbitrage portfolios between a composite option and options on the underlying option markets in the same form as exist for spread options and baskets? Do any exist for quantos? for quantos you can look at the Chicago Nikkei versus Osaka nikkei. specifically, you would look at the roll and see if you can pick up some free covariance.