Quanto Derivatives in Local Volatility Models

2014 Global Derivatives Conference, Amsterdam

23 Pages Posted: 22 Oct 2014

See all articles by Ghislain Vong

Ghislain Vong

Deutsche Bank AG - Global Equity Derivatives

Mateo Rojas-Carulla


Date Written: May 14, 2014


The valuation of quanto options is dependent on the dynamic of the underlying equity and FX processes, and valuing them under models capturing both implied volatility skews is an active topic of research. In this article, we present a new method to calculate quanto options under a local volatility assumption. Our approach is based on applying stochastic expansion techniques pioneered by Emmanuel Gobet to a time-dependent quadratic local variance model. In passing we also derive accurate time averaging formulas for such models enabling an efficient and robust calibration to implied volatility.

Keywords: quanto options, local volatility, stochastic expansion

Suggested Citation

Vong, Ghislain and Rojas-Carulla, Mateo, Quanto Derivatives in Local Volatility Models (May 14, 2014). 2014 Global Derivatives Conference, Amsterdam, Available at SSRN: https://ssrn.com/abstract=2512510 or http://dx.doi.org/10.2139/ssrn.2512510

Ghislain Vong (Contact Author)

Deutsche Bank AG - Global Equity Derivatives ( email )

United Kingdom

Mateo Rojas-Carulla

Independent ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics