Pricing interest rate (IR) derivatives

SciComp offers two solutions for pricing interest rate derivatives, SciFinance and SciCMD.

SciFinance is an automated coding technology for rapidly developing derivatives pricing and risk models. SciFinance models can be created by simply modifying one of hundreds of model templates provided with the system or by writing a model specification comprised of arbitrary partial differential equation (PDE) or stochastic differential equation (SDE), numerical algorithms and the use of key words. SciFinance does the rest by automating the programming task via the SciPDE and SciMC modules to produce fully documented C/C++ source code or Excel spreadsheets and add-ins.

SciCMD meets the needs of users looking for "off-the-shelf" interest rate pricing and risk models as well as those seeking a customized model approach that captures particular instrument features and modeling needs. SciCMD models are state-of-the-art pricing and risk models comparable to those found on the desks of traders and risk managers within Tier-1 financial organizations. Like SciFinance, SciCMD supports the modeling of any financial instrument that can be priced using a PDE or SDE and the deliverable may include a ready-to-use Excel add-in or C/C++ source code pricing library.

SciComp's modeling flexibility and transparency provides:

• Support for any interest rate derivative (including sensitivity to any model parameter) that can be priced using a PDE or SDE
• Support for both market standard and proprietary pricing models
• Robust calibration routines
• Pricing model C/C++ source code

Pricing models for interest rate derivatives

SciComp solutions support any interest rate derivative pricing model that can be expressed as an SDE or PDE and no list can be complete (partial list below).

• Single or multi-factor short rate models:
  • CIR / Vasicek / Ho Lee / Hull White / BK
  • Arbitrarily user defined
• Libor Market models:
  • HJM / BGM
  • LIBOR swap models
• CEV
• Features include:
  • Stochastic volatility extensions
  • Jump extensions
  • Numerically defined discounting with interpolation schemes

Pricing model calibration

SciCalibrator is an automated coding technology for translating calibration specifications into C/C++ source code calibration routines and ready-to-use, standalone Calibration Spreadsheets.

Calibration routines include:

• Generic Short Rate Calibration:
  • Single and multi-factor Gaussian models
  • Generic single factor models (e.g. G1,HW,EEV,BK,CIR)
  • PDE pricing models supported
  • Interest rates and hazard rates correlated
• LMM Calibration
  • Exact fit to caps and least square fit of parameterized correlation matrix of swaptions

Interest rate structures

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

Examples of interest rate derivatives:

• Vanilla exotics
• Basis structures
• Cross currency
• Inverse floating
• Quanto
• Chooser
• Diff structures
• Zero coupon
• CMS/CMT
• Auto caps
• Digital payouts
• Range accrual
• FX linked
• Knock in/out
• Power reverse dual
• Snowballs
• Multi-option
• Risky bonds

Option types include:

• European
• Bermudan
• American
• Path dependent
• Barrier