1 © 2011 The MathWorks, Inc. Computing VaR with MATLAB Martin Demel, Application Engineer
1 © 2011 The MathWorks, Inc.
Computing VaR with MATLAB
Martin Demel, Application Engineer
2
Agenda
• Introducing MathWorks
• Introducting MATLAB (Portfolio Optimization Example)
• Introducting Algorithmic Trading with MATLAB
Break
• Credit Risk Modeling with MATLAB
• Risk Management using various VaR
computation methods
• Overview of derivatives pricing capabilities and further
financial computing products
• Q&A
3
Computational Finance Workflow
Files
Databases
Datafeeds
Access
Reporting
Applications
Production
Share
Data Analysis and Visualization
Financial Modeling
Application Development
Research and Quantify
Builder NE
Builder EX
Builder JA
MATLAB Compiler
Rep
ort G
en
era
tor
Datafeed
Database
Spreadsheet Link EX
Financial
Statistics Optimization
Fixed Income Financial Derivatives Econometrics
MATLAB
Parallel Computing MATLAB Distributed Computing Server
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Financial Modeling with MATLAB
Financial – Financial charting and analysis, portfolio
optimizations, risk analyses, asset allocations, fixed-income pricing
Fixed income – Determine the price, yield, and cash flows for
many types of fixed-income securities including mortgage-backed
Financial derivatives – Analyze and model equity and fixed-income
derivatives and securities contingent on interest rates
Econometrics – Perform Monte Carlo simulation of univariate
returns, perform pre- and post-estimation diagnostic and hypothesis testing, estimate parameters of general ARMAX/GARCH models
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Statistics Toolbox
Organizing Data
Descriptive Statistics
Statistics Visualization
Probability Distributions
Random Number Generation
Hypothesis test
Analysis of variance
Regression analysis
Multivariate methods
Cluster Analysis
Classification
Markov models
Design of experiments
Statistical Process Control
Parallel Statistics
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Financial Toolbox
Performing common financial tasks
Portfolio analysis
Investment performance metrics
Credit Risk Analysis
Regression with missing data
Financial time series analysis
Using financial time series
Financial Time Series Tool and GUI
Trading Date Utilities
Technical Analysis
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Econometrics Toolbox
Time series modeling
Model Selection
Simulation
Estimation
Forecasting
Regression
Multiple time series
Lag Operator polynomials
Stochastic differential equations
Seasonal ARIMA, GARCH, EGARCH, and
GJR model objects for modeling
univariate time series data
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Fixed Income Toolbox
Mortgage-Backed Securities
Debt instrument
Derivatives securities
Credit Default Swaps
Interest Rate Curve Objects and class reference
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Financial Derivatives Toolbox
Interest Rates Derivatives
Equity Derivatives
Hedging portfolios
Derivatives pricing options
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Types of Derivatives
Interest Rate Derivatives – Options: calls/put
– Caps / Floors
– Swaps, Swaptions
– Futures / Forwards
– Convertible bonds, putable/callable bonds, OAS
Equity Derivatives – Vanilla options: calls/puts
– Exotic options: Asian
Barrier
Compound
Lookback
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Fixed-Income and Fin. Derivatives Toolbox
– Single name CDS Options (credit default swaptions)
– Convertible bond pricing updated (put features, variable-rate
coupons, continuous dividend yields, and no exercise periods)
Financial Derivatives
– Interest-rate tree model in option adjusted spreads (OAS) for
callable and putable bonds
– Generalized Hull-White algorithm for interest-rate tree models
What are the honorable mentions?
Customers have asked for…
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Continuous
Nonlinear Minimization
Nonlinear Least-Squares
Nonlinear Equations
Nondifferentiable Optimization
Nonlinear Programming
Multi-Objective Optimization
Linear Programming
Quadratic Programming
Constrained Linear Least-Squares
Continuous Discontinuous
and Stochastic
Global Discrete and
Custom Data Types
Discrete
Binary Integer Programming
Unconstrained Constrained
Global Optimization
Toolbox
Optimization Toolbox
(Global) Optimization Toolbox
Mixed Integer Programming
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Curve Fitting Toolbox
Flexible graphical user interface for fitting and plotting surfaces (sftool)
Four types of surface
fitting algorithms:
– Linear regression
– Nonlinear regression
– Smoothing
– Interpolation
Storage of results from a fitting
operation in surface fit objects
Automatic MATLAB code generation for surface fits and plots from sftool
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Other toolboxes
of great interest for finance
Datafeed Toolbox
Database Toolbox
Spreadsheet Link Excel
Neural Network Toolbox
Parallel Computing Toolbox
MATLAB Compiler
MATLAB Builder JA
MATLAB Builder NE
MATLAB Report Generator
Symbolic Math Toolbox
Signal Processing Toolbox
Control System Toolbox
Wavelet Toolbox
Fuzzy Logic Toolbox
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Key take-aways
Fast and easy to use all-in-one
development environment
Huge number of built-in
functionality
Speed up your calculations with almost no code change
Easy to build a complete application
Share your code and applications royality free
• MATLAB
• Financial Toolbox™
• Econometrics Toolbox™
• Optimization Toolbox™
• Statistics Toolbox™
• Compiler Toolbox™
• Parallel Computing Toolbox™
Highlighted products :
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Agenda
• Introducing MathWorks
• Introducting MATLAB (Portfolio Optimization Example)
• Introducting Algorithmic Trading with MATLAB
Break
• Credit Risk Modeling with MATLAB
• Risk Management using various VaR
computation methods
• Overview of derivatives pricing capabilities and further
financial computing products
• Q&A