Models

FINCAD uses a variety of industry standard, market-tested financial analytics models and calculation methodologies. Full documentation is provided in the product


General Models

  • Black Scholes (log-normal)
  • Local volatility - parametric:
    • Shifted Lognormal / Displaced Diffusion
    • Normal
    • CEV
  • Local volatility - non-parametric (Dupire)
  • Stochastic Volatility
    • Heston
    • SABR

Interest Rate Models

  • Black
  • Hull-White short rate (1-and 2-factor)
  • Ho-Lee
  • Black-Karasinski short rate (1-factor)
  • Black-Derman-Toy
  • Two-Addititve-Factor Gaussian short-rate
  • LIBOR Market Model (BGM/J)
    • Standard log-normal LMM
    • CEV-enhanced LMM
    • Shifted log-normal (Displaced Diffusion) LMM
  • SABR Model of Stochastic Volatility
    • Forward rates (Caplet Pricing)
    • Swap rates (Swaption Pricing)

FX Models

  • Garman Kohlhagen
  • Cross currency multi-factor hybrid IR/FX (Piterbarg 2006)

Credit Models

  • One-factor Gaussian Copula model (Li)
  • Recursion method for CDOs
  • Multi-period Credit Index model (Hull-White)
  • Displaced Diffusion Model for CDS index options (Liu and Jackel)

General Calculation Methods

  • Binomial & trinomial trees (Cox-Ross-Rubinstein or Hull-White)
  • Closed-form analytical solutions
  • Fast Fourier transform methods
  • Monte Carlo simulation (including Longstaff-Schwarz for early exercise)
  • Matrix methods (eigenvalues, Cholesky decomposition etc)
  • Minimization algorithms:
    • Levenberg-Marquardt
    • Downhill Simplex
    • Differential Evolution
  • Numerical integration (Gaussian quadrature, Simpsons’s method, etc)
  • Partial differential equations (PDEs)
  • Regression (linear, polynomial)
  • Recursion methods (for synthetic CDOs)
  • Root-finding algorithms (Bisection, Newton-Raphson, Brent)