Definitions for "quanto option"
Option in one currency, but which pays out in another. Quanto options are usually...
Option on a foreign stock with payout in another (e.g. domestic) currency. The foreign interest rate determines the size of the futures cash flows that are denominated in domestic currency. If foreign interest rate and the exchange rate are positively correlated, a rise in foreign interest rate will cause an appreciation in domestic currency, and therefore the value of the total cash flows will increase for investor. In conclusion, a Quanto option allows investors to take advantage of interest-rate differentials without directly incurring exchange-rate risk.
An option in which the payoff is the greater of zero or the value of a Quanto Forward contract. In other words, it is a European fixed exchange rate foreign equity option.