Quanto adjustments in the presence of stochastic volatility
Quanto options are options where the payout is paid in a currency different from the currency in which the underlying asset is traded and where the applied foreign exchange rate between the two currencies is set to one. The fixed forex rate allows the holder of a quanto option to participate in the performance of the underlying without carrying the risk of a changing forex rate. However, pricing and risk-managing quanto options on foreign equities has become increasingly challenging in recent
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