## Chapter 11 - Forward Quanto

This forum is to discuss the book "the concepts and practice of mathematical finance" by Mark Joshi.

### Chapter 11 - Forward Quanto

hi mark,

looking at section 11.7 Quanto options, the value of the quanto forward in this section is noted as:

e^{-rT} E [ M_T - K ]

However, if we want the payoff in sterling, why don't we multiply by the exchange rate F_T? That is, why isn't the value:

e^{-rT} E [ F_T (M_T - K ) ]

regards,
a former student who apparently got the quanto question right in the final exam
robert_t

Posts: 2
Joined: Fri May 09, 2014 2:17 am

### Re: Chapter 11 - Forward Quanto

I don.t really get your question.

M_T is a dollar amount. But we receive M_T - K pounds. I don't see what
F_T(M_T-K) has to do with it.
mj

Posts: 1380
Joined: Fri Jul 27, 2007 7:21 am

### Re: Chapter 11 - Forward Quanto

isn't F_T (M_T - K ) the amount we receive in pounds at time T?

if M_T is a dollar amount... to convert this into pounds at time T don't we have to multiply by F_T ?
robert_t

Posts: 2
Joined: Fri May 09, 2014 2:17 am

### Re: Chapter 11 - Forward Quanto

the contract says that you convert it at a rate of one to one
mj