Quanto-type instruments, such as a quanto swap or a quanto cap/floor, involve two currencies. In these circumstances the pricing of such an instrument must take account of the ATM (at the money) volatilities between the underlying currency pair.
You can see the ATM volatilities for the currency pair in the instrument’s Volatility window. This window is accessed by clicking the FX Volatility Curve button (either in the Single Option page or in the Single Option Data window).
Once the ATM volatility data is displayed, you can then edit the data as necessary.
After making any changes, you can then tell the system to freeze the rates, that is, to use the edited rates until further notification. You do this by clicking the Accept button. The frozen rates are then used in the pricing pages to price any quanto-type instrument based on this currency pair until one of the following events happens:
The current session ends.
In the pricing page you click the Refresh button or the Refresh Rates button.
To edit the ATM volatilities used for a currency pair:
| 1. | In the Single Option page enter a quanto instrument. |
| 2. | Define the currencies as relevant. |
| 3. | Click the FX Volatility Curve button. The Volatility window opens. |
| 4. | Edit the correlation data as required. Any edited value is highlighted in blue. |
| 5. | Click Accept and then OK. The changes are saved and the Volatility window closes. |