Pricing Quantos Options.

The cornerstone of derivative pricing theory are the Black–Scholes-Merton pricing model and the martingale pricing theory. Under this approaches, the risk neutral valuation states that the price of a derivative is given by the expectation of the discounted terminal payoff under the risk neutral measure. In this opportunity we will determinate the Pricing Quanto Options. A “quanto” is a type of derivative in which the underlying is denominated in one currency, but the instrument itself is converted to domestic currency at a fixed exchange rate.