Computing VaR With MATLAB

Computing VaR with MATLABMartin Demel, Application Engineer 2011 The MathWorks, Inc.1

Agenda Introducing MathWorks Introducting MATLAB (Portfolio Optimization Example) Introducting Algorithmic Trading with MATLABBreak Credit Risk Modeling with MATLAB Risk Management using various VaRcomputation methods Overview of derivatives pricing capabilities and furtherfinancial computing products Q&A2

Computational Finance WorkflowAccessResearch and QuantifyShareFilesData Analysis and VisualizationReportingDatabasesFinancial ModelingApplicationsDatafeedsApplication DevelopmentProductionFixed Income Financial atisticsBuilder EXBuilder NEOptimizationBuilder JAMATLAB CompilerReport GeneratorSpreadsheet Link EXMATLABParallel ComputingMATLAB Distributed Computing Server3

Financial Modeling with MATLAB Financial– Fixed income– Determine the price, yield, and cash flows formany types of fixed-income securities includingmortgage-backedFinancial derivatives– Financial charting and analysis, portfoliooptimizations, risk analyses, asset allocations,fixed-income pricingAnalyze and model equity and fixed-incomederivatives and securities contingent on interestratesEconometrics–Perform Monte Carlo simulation of univariatereturns, perform pre- and post-estimationdiagnostic and hypothesis testing, estimateparameters of general ARMAX/GARCH models4

Statistics Toolbox Organizing DataDescriptive StatisticsStatistics VisualizationProbability DistributionsRandom Number GenerationHypothesis testAnalysis of varianceRegression analysisMultivariate methodsCluster AnalysisClassification Markov modelsDesign of experimentsStatistical Process ControlParallel Statistics5

Financial Toolbox Performing common financial tasksPortfolio analysisInvestment performance metricsCredit Risk AnalysisRegression with missing dataFinancial time series analysisUsing financial time seriesFinancial Time Series Tool and GUITrading Date UtilitiesTechnical Analysis6

Econometrics Toolbox Time series modelingModel Multiple time seriesLag Operator polynomialsStochastic differential equationsSeasonal ARIMA, GARCH, EGARCH, andGJR model objects for modelingunivariate time series data7

Fixed Income Toolbox Mortgage-Backed SecuritiesDebt instrumentDerivatives securitiesCredit Default SwapsInterest Rate Curve Objects and class reference9

Financial Derivatives Toolbox Interest Rates DerivativesEquity DerivativesHedging portfoliosDerivatives pricing options10

Types of Derivatives Interest Rate Derivatives––––– Options: calls/putCaps / FloorsSwaps, SwaptionsFutures / ForwardsConvertible bonds, putable/callable bonds, OASEquity Derivatives– Vanilla options: calls/puts– Exotic options: AsianBarrierCompoundLookback11

What are the honorable mentions?Customers have asked for Fixed-Income and Fin. Derivatives Toolbox– Single name CDS Options (credit default swaptions)– Convertible bond pricing updated (put features, variable-ratecoupons, continuous dividend yields, and no exercise periods) Financial Derivatives– Interest-rate tree model in option adjusted spreads (OAS) forcallable and putable bonds– Generalized Hull-White algorithm for interest-rate tree models12

(Global) Optimization xDiscreteBinary cProgrammingConstrained LinearLeast-SquaresGlobalDiscrete andCustomData TypesMixed IntegerProgramming13

Curve Fitting Toolbox Flexible graphical user interface for fitting andplotting surfaces (sftool) Four types of surfacefitting algorithms:– Linear regression– Nonlinear regression– Smoothing– Interpolation Storage of results from a fittingoperation in surface fit objects Automatic MATLAB code generationfor surface fits and plots from sftool14

Other toolboxesof great interest for finance Datafeed Toolbox Database Toolbox Spreadsheet Link Excel Neural Network ToolboxParallel Computing ToolboxMATLAB CompilerMATLAB Builder JAMATLAB Builder NEMATLAB Report GeneratorSymbolic Math ToolboxSignal Processing ToolboxControl System ToolboxWavelet ToolboxFuzzy Logic Toolbox15

Key take-awaysHighlighted products : MATLABFinancial Toolbox Econometrics Toolbox Optimization Toolbox Statistics Toolbox Compiler Toolbox Parallel Computing Toolbox Fast and easy to use all-in-onedevelopment environment Huge number of built-infunctionality Speed up your calculations with almost no code change Easy to build a complete application Share your code and applications royality free16

Agenda Introducing MathWorks Introducting MATLAB (Portfolio Optimization Example) Introducting Algorithmic Trading with MATLABBreak Credit Risk Modeling with MATLAB Risk Management using various VaRcomputation methods Overview of derivatives pricing capabilities and furtherfinancial computing products Q&A17

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