Abstract
This paper proposes model-independent pricing bounds on quanto options and the corresponding replicating strategies, which are static ones whose portfolios consist of plain-vanilla options on the foreign asset and on the FX rate. Since they are derived model-independently, one can make profits with no risk if quanto options are priced outside the bounds. In addition, the pricing bounds can be improved if liquid quanto contracts such as quanto forward contracts are used for replication. Numerical examples show our pricing bounds comparing with the Black pricing formula and that with an ad-hoc adjustment.
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