Difficulty: Hard
Category: Options & Greeks
Practice quant interview questions from top firms including Jane Street, Citadel, Two Sigma, DE Shaw, and other leading quantitative finance companies.
Topics: quanto, options, correlation, fx
A U.S.-based hedge fund is considering trading a quanto option on the Nikkei 225 index. This option will pay out in U.S. dollars based on the performance of the Nikkei 225. The fund's quant team is debating the appropriate pricing model. Ignoring interest rate differentials and dividends for simplicity, what additional parameter, beyond the volatilities of the Nikkei 225 and the USD/JPY exchange rate, is crucial for accurately pricing this quanto option?
Practice this hard trader interview question on MyntBit - the all-in-one quant learning platform with 200+ quant interview questions for Jane Street, Citadel, Two Sigma, and other top quantitative finance firms.