Hybrid Instruments

SciComp offers two solutions for pricing hybrid instruments, SciFinance® and Custom Fit Pricing Models.

SciFinance

SciFinance is an automated coding technology for rapidly developing derivatives pricing and risk models. Simply select from one of hundreds of model specifications and modify as appropriate to capture the unique features of the hybrid instrument or to implement a preferred pricing approach. Hybrid instrument derivative pricing model specifications are comprised of arbitrary partial differential equations (PDEs) or stochastic differential equations (SDEs), numerical algorithms, keywords, and may include the calling of external functions. SciFinance does the rest by automating the programming task via the SciPDE and SciMC modules to produce fully documented C/C++/CUDA pricing model source code or Excel spreadsheets and add-ins.

Custom Fit Pricing Models

SciComp Custom Fit Pricing Models meet the needs of users looking for a customized hybrid instrument pricing model that has been tailored to their particular modeling needs and requirements. Custom Fit Pricing Models are state-of-the-art hybrid instrument pricing and risk models comparable to those found on the desks of traders and risk managers within Tier-1 financial organizations. Like SciFinance, Custom Fit Pricing Models support the modeling of any hybrid instrument that can be valued using PDEs or SDEs and are available as a C/C++/CUDA pricing executable, C/C++/CUDA pricing model source code or a ready-to-use Excel spreadsheet and add-in.

Hybrid instrument features available with SciFinance
and Custom Fit Pricing Models

Hybrid instrument overview

SciComp solutions supports the valuation of any hybrid instrument whose component legs can be expressed as a series of PDEs or SDEs. The legs of the hybrid instrument may be based on any type of asset class including:

• Equity
• FX
• Interest rate
• Commodity
• Energy
• Credit

Pricing models for hybrid instruments

SciComp solutions support any hybrid instrument leg that can be expressed as a PDE or SDE, so no list can be complete (partial list below).

• Local volatility models
• CEV (including time dependence)
• Stochastic volatility models
• Stochastic volatility with asset jumps (SVJ)
• Stochastic volatility with asset and volatility jumps (SVJJ)
• Universal models
• Cheyette model
• Clewlow & Stickland model
• Variance gamma, CGMY, CGMYSA, etc.
• Short rate models
• CIR / Vasicek / Ho Lee / Hull White / BK
• Cheyette model
• Libor Market models
• HJM / BGM
• LIBOR swap models
• Schwartz  
• Gabillon
• Reduced form approaches           
• Structural/Firm value approaches
• Multi factor models
• Implicit joint dependence
• Copulaes in Monte Carlo
• Semi-analytic method of Andersen, Sidenius and Basu
• Large Pool Base Correlation
• Stochastic recovery models (MC and semi-analytic
• Arbitrary user defined

Pricing model calibration

SciCalibrator is an automated coding technology for translating a pricing model calibration specification into the corresponding C/C++ source code for the calibration routine or a ready-to-use Excel spreadsheet and add-in. SciCalibrator comes with over a dozen analytical pricers for valuing the underlying calibration instruments or, if you prefer, you may use your own pricer. If no analytical pricer is available, you can generate a SciFinance PDE pricing model for use in the calibration routine.

Hybrid instrument calibration routines include:

• Local volatility
• CEV (including time dependence)
• Heston SV+ jumps
• CEV/SV Markovian Conditioning
• Kou double exponential jump model
• VG and CGMY models
• VGSA and CMGYSA (VG and CMGY + stochastic time change)
• Schwartz
• Gabillon
• Generic Short Rate Calibration:
• Single and multi-factor Gaussian models
• Generic single factor models (e.g. G1,HW,EEV,BK,CIR)
• Interest rates and hazard rates correlated
• LMM Calibration:
• Exact fit to caps and least square fit of parameterized correlation matrix of swaptions
• Stochastic volatility
• Credit Calibration:
• Survival probabilities/hazard rates from credit spreads
• Base correlation calibration
• Semi-analytic implied base correlation calibration including indexed based structures (e.g., DJ Itraxx, etc.)
• User defined calibration routine

Example hybrid instrument structures

Given that SciComp solutions support the modeling of any hybrid instrument derivative that can be priced with a PDE or SDE, no list can be complete (partial list below).

Examples of hybrid instruments:

• Vanilla options
• Asian options
• Basket options
• Barrier options
• Chooser options
• Cliquet options
• Compound options
• Contingent premium options
• Correlation options, 2-3 assets
• Digital options
• Ladder options
• Lookback options
• Power options
• Volatility options