Barrier Quanto Options in Energy Markets

Abstract: Weather derivatives have increased their relevance in energy markets throughout the last years. Among them, quanto options are one of the fairly new contracts that are traded, over the counter, to manage price and volume risk. Their research literature is scarce and few papers have been published so far. The purpose of the thesis is to slightly improve the current quanto options literature, from a theoretical prospective. The thesis has a presentation and discussion of quanto contract features. Then, barrier and parisian quanto options are presented as possible modifications of the basic quanto contract structure. Economic motivations of the latter issues are treated from a price and risk prospective. Then, a put style quanto option closed form pricing formula is derived as an extension of Benth et al. (2012) work [2]. After that, Monte Carlo simulation is used to price barrier and parisian quanto options in a theoretical framework.