Pricing Credit Derivatives

SciComp offers two solutions for pricing credit derivatives, 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 credit derivative or to implement a preferred pricing approach. Credit 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 credit derivatives pricing model that has been tailored to their particular modeling needs and requirements. Custom Fit Pricing Models are state-of-the-art credit derivative 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 credit derivative 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.

STCDO Pricing Engine

The STCDO Pricing Engine employs a Gaussian copula framework with stochastic recovery, semi-analytic or Monte Carlo methods, internal CDS calibration to extract the hazard rates from CDS quotes and a CDO calibration to extract base correlations from a standard credit index (e.g., DJ Itraxx). CUDA-enabled versions with accelerations of 20X to 30X for both the Monte Carlo and semi-analytic approaches are available.

Credit derivative features available with SciFinance
and Custom Fit Pricing Models

Pricing models for credit derivatives

SciComp solutions support any credit model that can be expressed as a PDE or SDE and no list can be complete (partial list below).

• 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 or SDE pricing model for use in the calibration routine.

Credit derivative calibration routines include:

• 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 credit structures

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

Examples of credit derivatives:

• Single name
• Defaultable bonds/Options on defaultable bonds
• CDS/CDS options
• Credit linked notes
•  American/Bermudan exercise
•  Range accrual structure
• Credit spread options
• Exchange options
• Basket structures
• Nth to default options/swaps
• Cash/Synthectic CDOs
• CDO²
• CLOs
• STCDO (single tranche CDOs)