The FX stochastic volatility model (FXSVM) has been developed by the quantitative research group at SunGard Reech to address the issue of pricing and hedging short-term (less than one year's maturity) exotic options on the FX market.

The main benefit of the model is its ability to replicate the "market smile" moves for a typical spot change, not only the current "market smile" for today's spot value. This generates the most accurate fair value price as it also helps ensure that the model will have the proper hedge ratio, including the right delta. A further advantage of this model is its ability to price virtually any exotic structure.

Stephen Ashworth, senior vice president at SunGard's Reech business unit, explained, "We have seen an increasing demand for FX option pricing from our fund administration customers, which itself comes from more widespread use of FX options in hedge fund trading strategies. By including our most advanced FX option model in our valuation service, we can now offer customers a very accurate and sophisticated service to help meet their evolving pricing needs for this type of derivative product."