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.
FX model choice also varies among houses - popular choices are Dupire-type local volatility models, stochastic SABR Volatility Models, or models which allow mixing of the two.