Technology used to understand the aerodynamics of cars is poised to streamline the ability of financial institutions to trade in financial options.

A CSIRO engineering computer package Fastflo, has now been found to have applications in finance. It is currently being used by a leading Australian bank, while another major bank is trialing the package.

"The type of equations that the package solves are very common in engineering and, it turns out, can be very useful in banking," CSIRO scientist Dr Zili Zhu says.

"This package was originally developed to model the way air flows over cars or predict the behaviour of flames in a combustion chamber," says Dr Zhu.

"Then we realised that the package could be used in other areas where there are also very complex equations. We found that Fastflo accurately prices complex financial options and makes it easier to develop new financial products."

"With Fastflo, financial institutions can work out the value of an option very quickly and accurately. It also makes it quicker to develop individually tailored options products."

Financial options are purchased by investors to guarantee having the option of buying or selling some asset at a future time for an agreed price. Trillions of dollars are now traded daily worldwide in options on foreign exchange, tradable assets and energy supply.

With market growth, new "exotic options" with added complexities have arisen.

"With the growing sophistication of the financial market, more specialised and complex options need to be developed and solved," Dr Zhu says.

"Because Fastflo was developed with very complex engineering situations in mind - like predicting the behaviour of molten metal flowing into a vessel - Fastflo can predict prices for very complex financial products, and it does this at a low cost," Dr Zhu says.

Fastflo was developed by CSIRO and is currently being used by engineers and scientists around the world.

"Fastflo brings years of development and research in engineering to the problem of options pricing," said Dr Zhu. "Finite element modelling, the method that Fastflo uses, has been used in engineering for years, but Fastflo is the first product to bring that method and expertise to financial institutions."

"Other methods, available through the software which banks are currently using, are more limited in the complexity they can handle and are very difficult to adapt for new exotic options," he said. "And because it is a proven method, it is also a new tool for risk-management."

"In the near future, Fastflo will also be used to speed up the development of new financial products," said Dr Zhu.

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Ms Janelle Kennard (02) 6216 7157