Linear Methods / Instruments

• Linear methods mean that the instruments are linear in the underlying
• Such models are used to evaluate trades where only forwards an discounts are used
• The methods involved are curves storing yield, forward FX or dividend information

Static Methods / Instruments

• Static methods are used for pricing of instruments that depend on the probability distribution at a given maturity, ie. trades with non-linear payoff functions
• Usually curves, surfaces and cubes of the yield and volatility need to be available
• European options with non or mild path-dependent features belong to these instruments
• The numerical methods span from integration, transformation to PDE and Monte Carlo

Dynamic Methods / Instruments

• Dynamic Methods are applied to instruments with payoffs dependent on the path taken by the underlying or functions as the average, the maximum or minimum.
• This includes accumulators like target redemption notes, range accruals, barriers, early exercise features
• The numerical methods need to be adapted to path dependency