A quantoed option whose payoff is determined based on a contractually agreed exchange rate and the difference between the sport price (spot exchange rate) at expiration and the strike price. The payoff for a quantoed call option (per unit of underlying rate) is given by:
Payoffcall = FXfixed × max [S -X, 0]
Where: FXfixed is the pre-agreed exchange rate, S is the spot price at expiration, and X is the option’s strike price.
Quantoed call options are also referred to as quanto calls.
