Quanto Fund Protection Using Partial Lookback Participation

Abstract

Given the complexity of global markets, investors need securities to manage foreign fund values adjusted by exchange rates, so-called quanto fund values. This paper discusses designing contracts for protecting quanto fund value through partial lookback participation and their valuations. To this end, we derive a generalized analytical expected value of a function of state variables and partial extreme. The derived expectation facilitates developing and pricing exotic quanto fund protections. The pricing formulas are beneficial in determining fair participation rates of a preferred return during a monitoring period. Numerical experiments showing the properties of the proposed contracts are provided.

Keywords: quanto fund, partial lookback, partial quanto extreme, participation rate