Valuation of Quanto Floating Range Notes under the Cross-Currency LIBOR Market Model

  •  Chi-Hsun Chou    
  •  Tsung-Yu Hsieh    
  •  Son-Nan Chen    


In this paper, we propose analytical valuation formulae for three types of quanto floating range notes based on the cross-currency LIBOR market model. The dynamics of forward LIBOR rates is a multifactor model that incorporates both the domestic and foreign interest rate process and the exchange rate process in a cross-currency environment. The derived formulae are analytically tractable and easy to implement in practice. The model parameters can be extracted directly from market quantities. We show that the empirical results are more accurate and robust than the results ofMonte Carlosimulation.

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