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Home > Derivatives Resources > Glossary

Financial Derivative Terms - Q

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Quant Fund

A group of securities that has been selected, bought, sold and analyzed according to a computer which has been programmed to meet specific investment criteria.

Quantitative Analysis

A type of measurement tool the uses mathematical and statistical modeling by applying numerical data such as earned interest, market share etc. in order to determine the price of financial instruments.

Quanto Derivative

A cash settled derivative that has an underlying asset denominated in one currency, but its payoff is in another currency which is often multiplied by a constant and is considered as a fixed exchange rate.

Quanto Forward

A type of forward contract involving two currencies.

Quanto Leg

A swap leg where the currency of the notional amount upon which the payments are based differs from the currency of the reference index. An example would be a floating leg in which the notional amount is denominated in Canadian dollars (CAD) while the reference index used is USD LIBOR.

Quanto Option

An option on an underlying asset in one (foreign) currency, but which is settled in a second (domestic) currency. These options are used when an investor believes that the value of the foreign security will increase but the currency may not, so the investor buys an option in the foreign asset which is paid out in the domestic currency.

Quanto Swap

An interest rate swap where payments are based on the movement of two countries’ interest rates. Though two different currencies are involved, payments are settled in the same currency.

Quanto swaps may be broken down into two general sub-categories. One category called fixed for quanto swaps, involves swaps where one party pays a fixed rate while the other party pays the variable quanto rate. The other category called floating for quanto swaps, is one where one party pays a regular floating rate (e.g. LIBOR) while the other pays the variable quanto rate.

Quanto Swaption

A contract that allows an investor, currently in a quanto swap with a counterparty, an option to either cancel the current swap at some pre-specified time (or times) in the future. These may also specify that some sort of compensation or exercise fee must be paid if the option is exercised.

Quote Currency

The secondary currency in an FX transaction and is usually the foreign currency.

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