Consider the following parameterisation based on Gaussian interest rates and lognormal spot FX : dS_t = (rt – r^ƒ_t) S_tdt + quanto Libor rate, i.e. where the Libor rate L_T (set at time T, with accrual fraction Ƭ  and paid at time T + Ƭ) is in the foreign currency but paid in the domestic currency without conversion at the FX rate.

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os(t) StdWS, dfa(t,T) = µa(t,T)dt + σd(t, T)dW? and dfƒ(t,T) = μg (t, T)dt + af(t, T)dW!, where dwddw! = Paj(t)dt, dw? t dw $ S Pas(t)dt, dwdws Pfs(t)dt. Find the value of a = S =