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| Quanto option | A quanto option is the name given to a type of option that is denominated in a currency other than the natural currency of the underlying. In particular, the payout of a quanto option does not depend upon the movement of the exchange rate between the two currencies.
For example, an option on the S&P500 index that is denominated in British Pounds is a quanto option if the return is simply based on the movement of the index and not the movement of the index and the movement of the sterling/dollar exchange rate. Most structured products that provide a link to foreign markets make use of quanto options. |