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In my previous post ( Part 4 ) of this series I explained how the index concept relates to complex payoffs. In this post I will define some higher-level Product types, all still Products, but with some specific structural features that makes expressing common derivatives convenient. Leg A Leg consists of a collection of Flows , all made in the same direction and in the same currency. It is the

A big thank you to MATLAB for hosting the Computational Finance Conference at the NYC Marriott Marquis today. Many of the FINCAD Alliance Partners attended as well - it was great to speak with all of you. It is always interesting to hear the challenges that quantitative finance professionals are grappling with across all segments (hedge funds, banks, insurance firms, governments, asset managers)

Part 3 in the Financial Architecture series tacked the index concept, explaining the distinction between the definition of the value (the index concept) and the value itself. This post will further examine this topic, and explain how the index concept relates to complex payoffs. Derivative contracts often oblige parties to make payments that depend on a collection of underlyings in complex ways

In part 1 and part 2 , I described how parties to a contract may be obliged to make payments and described the basic anatomy of a payment, but deferred the topic of exactly how the payment amount is specified, until now. The key requirement for the definition of a payment is unambiguous determination of the amount to be paid, when required. When the payment amount is determined and when the

The only essential content of a Product is the list of payment obligations and rights to make choices which it assigns. Given how important payments are in this conceptual framework, it is worth spending examining their structure. To specify a single cash flow, we need to know how much is paid when, and to whom. It is useful to divide the information this conveys into some distinct components: The