Pricing Energy Quanto Options: A Regime-switching Framework with Stochastic Interest Rates

This paper considers the valuation of energy quanto options in the presence of  regime-switching stochastic interest rates where the underlying price processes are  modelled by Markov-modulated additive processes. Using change of measure and fast Fourier transform techniques, we obtain a pricing formula for energy quanto options on futures. We show the precision of our pricing formula on an energy quanto option written on temperature and electricity futures prices.