Models & Methods

FINCAD uses a variety of industry standard, market-tested financial analytics models and calculation methodologies. Full documentation is provided in the product.

General Models

Black Scholes (log-normal)

Local volatility - parametric:

Shifted Lognormal / Displaced Diffusion
Normal
CEV

Local volatility - non-parametric (Dupire)

Stochastic Volatility

Heston
SABR

Interest Rate Models

Black

Hull-White short rate (1-and 2-factor)

Ho-Lee

Black-Karasinski short rate (1-factor)

Black-Derman-Toy

Two-Addititve-Factor Gaussian short-rate

LIBOR Market Model (BGM/J)

Standard log-normal LMM
CEV-enhanced LMM
Shifted log-normal (Displaced Diffusion) LMM

SABR Model of Stochastic Volatility

Forward rates (Caplet Pricing)
Swap rates (Swaption Pricing)

Credit Models

One-factor Gaussian Copula model (Li)

Recursion method for CDOs

Multi-period Credit Index model (Hull-White)

Displaced Diffusion Model for CDS index options (Liu and Jackel)

FX Models

Garman Kohlhagen

Cross currency multi-factor hybrid IR/FX (Piterbarg 2006)

General Calculation Methods

Binomial & trinomial trees (Cox-Ross-Rubinstein or Hull-White)
Closed-form analytical solutions
Fast Fourier transform methods
Monte Carlo simulation (including Longstaff-Schwarz for early exercise)
Matrix methods (eigenvalues, Cholesky decomposition etc)
Minimization algorithms:

Levenberg-Marquardt
Downhill Simplex
Differential Evolution

Numerical integration (Gaussian quadrature, Simpsons’s method, etc)
Partial differential equations (PDEs)
Regression (linear, polynomial)
Recursion methods (for synthetic CDOs)
Root-finding algorithms (Bisection, Newton-Raphson, Brent)