Resources

What's New in FINCAD Analytics v10

This release will address the fastest growing asset classes and areas of greatest innovation, including credit, interest rate / fixed income, and option analytics.

» To download the latest trial version of FINCAD Analytics, contact a FINCAD Representative.

Highlights include:

1) Credit Derivatives

  1. Implementation of the recursion method for faster CDO calculations
  2. Cash flow CDOs
  3. Other enhancements

CDS on synthetic CDO tranches continue to push the limit on calculation resources. For speed improvements of up to 100 times, our CDO analytics now offer a recursion method. See the June 2006 issue of Wilmott for technical details.

Cash flow (bond) CDOs (aka CBOs) are an enormous part of the credit market; we have added analytics specific to CDOs whose payoff come from the actual cash flows of the assets in the pool. Other enhancements include IMM date compliance, upfront payment considerations, the ability to price using implied spread and par upfront fee statistics for various credit instruments.

2) Options

  1. Implementation of local volatility modeling for equity, commodity, and FX options

Leaving the Black Scholes world of constant volatility behind, release 10 introduces option analytics that incorporate local volatility based on the work of Dupire and others. Largely applicable to the equity, commodity, and FX markets, analytics are available for European and American options for price, risk statistics, implied vol smile and the resultant PDF (including mean, std dev, skew, and kurtosis). The analytics support lognormal, normal, CEV, and shifted lognormal / displaced diffusion stochastic processes and user-defined payoffs. A variety of trading strategies are also supported. See the September 2006 issue of Wilmott for technical details.

3) Interest Rates & Fixed Income

  1. LMM with local volatility for CMS spread options, snowballs, and Bermudan swaptions.
  2. Brazilian swaps
  3. BMA swap curve enhancements
  4. Convertible bonds using PDEs
  5. New accrual methods (act/365L, NL/365)

The LIBOR Market Model implementation has been enhanced by the incorporation of local volatility within the calibration and pricing routines. This allows for the pricing of exotic derivatives such as callable CMS spread notes and swaps; the snowball and Bermudan swaption analytics now take into account local volatility, which allows their pricing to incorporate the volatility smile or skew.

New analytics are available for Brazilian swap pricing, accruals, and risk statistics, going beyond the analytics available from your Bloomberg Finance LP terminal.

Constant forward rate bootstrapping has been added to the BMA (tax exempt / municipal) curve analytics or a stepwise forward curve; the algorithm has been optimized for faster calculations.
Convertible bond analytics have been refactored utilizing PDE methods for better convergence and greater accuracy. Usability enhancements have also been made for easier specification of call, put, and conversion features.

Two new accrual methods, act/365L and NL/365, have been added to all relevant interest rate and fixed income analytics.

4) Utilities

  1. Enhanced volatility surface interpolation
  2. New date generation
  3. Cross currency swap basis spread curves
  4. Spreads to implied forwards for discount margin & OAS calculations

Coming out of the local volatility analytics, we have exposed the volatility surface interpolation allowing for missing data points and numerous methods including bilinear, bicubic, and thin plate splines.

New date generation functionality has been exposed allowing for the replication of cash flow dates of the new credit, interest rate, and fixed income analytics.

More options for working with curves are included through cross currency basis spread and implied forward rate spread functions allowing for more accurate pricing of cross currency swaps and the calculation of discount margin for FRNs.

Disclaimer

Your use of the information in this article is at your own risk. The information in this article is provided on an "as is" basis and without any representation, obligation, or warranty from FINCAD of any kind, whether express or implied. We hope that such information will assist you, but it should not be used or relied upon as a substitute for your own independent research.

For more information or a customized demonstration of the software, contact a FINCAD Representative.

 

* Bloomberg is a trademark of Bloomberg Finance LP. FINCAD is not associated in any way with Bloomberg Finance LP.