Learn more about Financial Derivatives Toolbox

Portfolio Creation

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Introduction Interest-Rate-Based Derivatives Equity Derivatives Adding Instruments to an Existing Portfolio

Introduction

The instadd function creates a set of instruments (portfolio) or adds instruments to an existing instrument collection. The TypeString argument specifies the type of the investment instrument. For interest-rate-based derivatives, the types are: Bond, OptBond, CashFlow, Fixed, Float, Cap, Floor, and Swap. For equity derivatives, the types are Asian, Barrier, Compound, Lookback, and OptStock.

The input arguments following TypeString are specific to the type of investment instrument. Thus, the TypeString argument determines how the remainder of the input arguments is interpreted. For example, instadd with the type string Bond creates a portfolio of bond instruments.

InstSet = instadd('Bond', CouponRate, Settle, Maturity, Period,
Basis, EndMonthRule, IssueDate, FirstCouponDate, LastCouponDate,
StartDate, Face)

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Interest-Rate-Based Derivatives

In addition to the bond instrument already described, the toolbox can create portfolios containing the following set of interest-rate-based derivatives:

• Bond option

  InstSet = instadd('OptBond', BondIndex, OptSpec, Strike, 
  ExerciseDates, AmericanOpt)
  

• Arbitrary cash flow instrument

  InstSet = instadd('CashFlow', CFlowAmounts, CFlowDates, Settle, Basis)
  

• Fixed-rate note instrument

  InstSet = instadd('Fixed', CouponRate, Settle, Maturity, 
  FixedReset, Basis, Principal) 
  

• Floating-rate note instrument

  InstSet = instadd('Float', Spread, Settle, Maturity, FloatReset,
  Basis, Principal)
  

• Cap instrument

  InstSet = instadd('Cap', Strike, Settle, Maturity, CapReset, 
  Basis, Principal) 
  

• Floor instrument

  InstSet = instadd('Floor', Strike, Settle, Maturity, FloorReset,
  Basis, Principal) 
  

• Swap instrument

  InstSet = instadd('Swap', LegRate, Settle, Maturity, LegReset, 
  Basis, Principal, LegType)
  

• Swaption instrument

  InstSet = instadd('Swaption', OptSpec, Strike, ExerciseDates, Spread,...
  Settle, Maturity, AmericanOpt, SwapReset, Basis, Principal)

• Bond with embedded option instrument

  InstSet = instadd('OptEmBond', CouponRate, Settle, Maturity, OptSpec, Strike,
  ExerciseDates, 'AmericanOpt', AmericanOpt, 'Period', Period,'Basis', Basis, 
  'EndMonthRule', EndMonthRule,'Face',Face,'IssueDate', IssueDate, 'FirstCouponDate', 
  FirstCouponDate, 'LastCouponDate', LastCouponDate,'StartDate', StartDate)
  

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Equity Derivatives

The toolbox can create portfolios containing the following set of equity derivatives:

• Asian instrument

  InstSet = instadd('Asian', OptSpec, Strike, Settle, 
  ExerciseDates, AmericanOpt, AvgType, AvgPrice, AvgDate)
  

• Barrier instrument

  InstSet = instadd('Barrier', OptSpec, Strike, Settle, 
  ExerciseDates, AmericanOpt, BarrierType, Barrier, Rebate)
  

• Compound instrument

  InstSet = instadd('Compound', UOptSpec, UStrike, USettle,  
  UExerciseDates, UAmericanOpt,COptSpec, CStrike, CSettle, 
  CExerciseDates, CAmericanOpt)
  

• Lookback instrument

  InstSet = instadd('Lookback', OptSpec, Strike, Settle, 
  ExerciseDates, AmericanOpt)
  

• Stock option instrument

  InstSet = instadd('OptStock', OptSpec, Strike, Settle, Maturity,
  AmericanOpt) 
  

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Adding Instruments to an Existing Portfolio

To use the instadd function to add additional instruments to an existing instrument portfolio, provide the name of an existing portfolio as the first argument to the instadd function.

Consider, for example, a portfolio containing two cap instruments only:

Strike = [0.06; 0.07];
Settle = '08-Feb-2000';
Maturity = '15-Jan-2003';

Port_1 = instadd('Cap', Strike, Settle, Maturity);

These commands create a portfolio containing two cap instruments with the same settlement and maturity dates, but with different strikes. In general, the input arguments describing an instrument can be either a scalar, or a number of instruments (NumInst)-by-1 vector in which each element corresponds to an instrument. Using a scalar assigns the same value to all instruments passed in the call to instadd.

Use the instdisp command to display the contents of the instrument set:

instdisp(Port_1)

Index Type Strike Settle      Maturity    CapReset Basis Principal
1     Cap  0.06   08-Feb-2000 15-Jan-2003 1        0     100 
2     Cap  0.07   08-Feb-2000 15-Jan-2003 1        0     100 

Now add a single bond instrument to Port_1. The bond has a 4.0% coupon and the same settlement and maturity dates as the cap instruments.

CouponRate = 0.04;
Port_1 = instadd(Port_1, 'Bond', CouponRate, Settle, Maturity);

Use instdisp again to see the resulting instrument set:

instdisp(Port_1)

Index Type Strike Settle      Maturity    CapReset Basis Principal
1     Cap  0.06   08-Feb-2000 15-Jan-2003 1        0     100 
2     Cap  0.07   08-Feb-2000 15-Jan-2003 1        0     100 

Index Type CouponRate Settle      Maturity    Period Basis ..Face
3     Bond 0.04       08-Feb-2000 15-Jan-2003 2      0       100

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Expected Background

Portfolio Management

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