A quanto is an option on an asset denominated in a foreign currency with an associated predeterminded exchange rate. For example, a quanto call holder would have the right to purchase a foreign stock and have the proceeds converted into local currency at the predetermined exchange rate.
Several inputs in addition to the black scholes inputs are required. The predetermined exchange has already been discussed as should be specified in the option contract. Two volatilities are required, one each for the asset price and the exchange rate. The correlation between the asset price and the exchange rate is also required (the correlation must be between -1 and 1)
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