Comprehensive Derivatives Pricing Model Validation

Models are crucial for the functioning of financial institutions: quantifying counterparty exposure, instrument valuation, risk measures, capital requirements, etc. As financial institutions have significantly increased their reliance on quantitative models, regulatory agencies have responded with new guidelines for model validation. The flow of new regulations, e.g. “SR Letter 11-7” the “Supervisory Guidance on Model Risk Management” in the United States, has accelerated greatly with the financial crisis, increasing the cost of compliance at a time when resources are already stretched thin.


derivatives pricing models

SciFinance, the premier derivatives pricing code generation technology, is an optimal pricing model validation tool providing powerful and robust functionality. SciFinance does not impose a set of pre-implemented, “black-box” canned models, but instead allows users to easily and rapidly create bespoke models, thus facilitating the evaluation of a model’s conceptual soundness. 

SciFinance eliminates programming by automatically translating model specifications for any financial derivative into fully documented C++ source code. All included libraries are provided as source code as well. An intuitive VHLL for describing financial contracts and numerical methods and a friendly LSE, combine to make a powerful environment for implementing and testing modeling decisions. SciFinance generates wrapper code (in Java, Python, Excel, COM, or .NET) to automate integration without imposing proprietary data models.

SciFinance provides a cost effective solution for comprehensive pricing model validation. SciFinance allows rapid validation of existing models via alternative techniques, e.g. underlying model dynamics (a nearly limitless variety of partial differential equations and stochastic differential equations is supported), numerical methods, solvers, finite difference schemes, Monte Carlo discretizations, sensitivity measures, etc.

In the vast majority of validation tasks where the dynamics are of low dimension, MC models can be validated against PDEs and visa versa in minutes.

SciFinance generated pricing model source code is modular and richly commented.

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