Abstract. Recently, a spot martingale measure pricing method to derive pricing formulas of quanto forward contracts within the Heath, Jarrow and Morton (1992) interest rate model was published. Although the spot martingale measure pricing method is interesting, it requires that one knows something about the dependence between the discount factor and the payoff of the derivative security. Thus, more procedures are required for computations. This paper proposes another simple approach. In particular, we demonstrate the forward measure pricing methodology to the valuation of quanto forward contracts within the HJM interest rate model and provide great ease in deriving closed form solutions.

Received: January 13, 2012

AMS Subject Classification: 91B28, 60G48 , 60J75

Key Words and Phrases: quanto forward contracts, Heath-Jarrow-Morton model, forward measure pricing method

Download paper from here.