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 correlation between the IR forward rate (i.e., the forward rate of the quanto swap’s currency) and the FX forward rate (i.e., the forward rate of the currency pair that consists of the quanto swap’s currency and the currency of the foreign index).
You can see the correlation data in the instrument’s Correlation window. This window is accessed by clicking the Correlation Curve button (either in the Single Option page or in the Single Option Data window).
Once the correlation data is displayed, you can then edit the data as necessary. Subsequently the edited data is used to price any quanto-type instrument based on this currency pair until:
The current session ends.
In the pricing page you click the Refresh button or the Refresh Rates button.
To edit the correlation data used for a currency pair:
| 1. | In the Single Option page enter a quanto instrument. |
| 2. | Define the currencies as relevant. |
| 3. | Click the Correlation Curve button. The Correlation window opens. |
| 4. | Edit the correlations as required. Any edited value is highlighted in blue. |
| 5. | Click Accept and then OK. The changes are saved and the Volatility window closes. |