BROWSE

Quanto Swap

What is 'Quanto Swap'

A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates.

This is also referred to as a differential or "diff" swap.

Explaining 'Quanto Swap'

Though they deal with two different currencies, payments are settled in the same currency. For example, a typical quanto swap would involve a U.S. investor paying six-month LIBOR in U.S. dollars (for a US$1 million loan), and receive payments in U.S. dollars at the six-month EURIBOR + 75 basis points.

Fixed-for-floating quanto swaps allow an investor to minimize foreign exchange risk. This is achieved by fixing both the exchange rate and interest rate at the same time. Floating-for-floating swaps have slightly higher risk, since each party is exposed to the spread between each country's currency interest rate.


Further Reading


Multi currency credit default swaps: Quanto effects and FX devaluation jumps
papers.ssrn.com [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …

Pricing quanto equity swaps in a stochastic interest rate economyPricing quanto equity swaps in a stochastic interest rate economy
www.tandfonline.com [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …

Sovereign credit risk and exchange rates: Evidence from CDS quanto spreadsSovereign credit risk and exchange rates: Evidence from CDS quanto spreads
www.nber.org [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …

The “end of geography” in financial services? Local embeddedness and territorialization in the interest rate swaps industryThe “end of geography” in financial services? Local embeddedness and territorialization in the interest rate swaps industry
www.tandfonline.com [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …

Pricing equity swaps in an economy with jumpsPricing equity swaps in an economy with jumps
www.tandfonline.com [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …

Credit Default Swaps: A Primer and Some Recent TrendsCredit Default Swaps: A Primer and Some Recent Trends
www.annualreviews.org [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …

Hedging quantos, differential swaps and ratiosHedging quantos, differential swaps and ratios
www.tandfonline.com [PDF]
… replaced by a quanto swap rate, the correction term depending on the covariance of the pvbp-weighted foreign exchange rate with the foreign swap rate. The approach presented … 127–155. Doust,P. (1995). “Relative Pricing Techniques in the Swaps and Options Markets.” …


Leave a Reply

Your email address will not be published. Required fields are marked *