 The swap house is, thus, selling a series of Currency options with a floating rate as a premium; the rate is usually subtracted with a spread.formula_1

where

The pricing of PRDCs used to be done using 3-factor grid/lattice or Monte Carlo models where one factor represents the short rate in currency1; the second factor the short rate in currency2; and the third factor the movement in the FX rate between currency1 and currency2.Model choice for the interest rate factors varies - for speed reasons, popular choices are Hull-White model, Black-Karasinski model, and extended Cheyette Model.