Multi-Currency Valuation - ‘Quanto’ Drift Adjustment
Document ID: 2007-86 (previously 2007/010)
Published on: 1st October 2007
In multi-currency modelling, correlations between exchange rates and equities/bonds imply a non-zero (local currency) drift to ensure that martingale properties are satisfied under the risk-neutral measure. This document derives the local currency drift required on 'foreign' interest rates and equities to account for this 'quanto' adjustment.
