Portfolio Management

Instrument Constructors

The toolbox provides constructors for the most common financial instruments. A constructor is a function that builds a structure dedicated to a certain type of object; in this toolbox, an object is a type of market instrument.

The instruments and their constructors in this toolbox are listed below.

Each instrument has parameters (fields) that describe the instrument. The toolbox functions let you do the following:

• Create an instrument or portfolio of instruments.

• Enumerate stored instrument types and information fields.

• Enumerate instrument field data.

• Search and select instruments.

The instrument structure consists of various fields according to instrument type. A field is an element of data associated with the instrument. For example, a bond instrument contains the fields CouponRate, Settle, Maturity, and so on. Additionally, each instrument has a field that identifies the investment type (bond, cap, floor, and so on).

In reality, the set of parameters for each instrument is not fixed. You have the ability to add additional parameters. These additional fields are ignored by the toolbox functions. They may be used to attach additional information to each instrument, such as an internal code describing the bond.

Parameters not specified when creating an instrument default to NaN, which, in general, means that the functions using the instrument set (such as intenvprice or hjmprice) will use default values. At the time of pricing, an error occurs if any of the required fields is missing, such as Strike in a cap or CouponRate in a bond.

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Creating New Instruments or Properties

Use the instaddfield function to create a kind of instrument or to add new properties to the instruments in an existing instrument collection.

To create a kind of instrument with instaddfield, you must specify three arguments:

• Type

• FieldName

• Data

Type defines the type of the new instrument, for example, Future. FieldName names the fields uniquely associated with the new type of instrument. Data contains the data for the fields of the new instrument.

An optional fourth argument is ClassList. ClassList specifies the data types of the contents of each unique field for the new instrument.

Here are the syntaxes to create a kind of instrument using instaddfield:

InstSet = instaddfield('FieldName', FieldList, 'Data', DataList,...
'Type', TypeString)
InstSet = instaddfield('FieldName', FieldList, 'FieldClass',...
ClassList, 'Data' , DataList, 'Type', TypeString)

To add new instruments to an existing set, use:

InstSetNew = instaddfield(InstSetOld, 'FieldName', FieldList,...
'Data', DataList, 'Type', TypeString)

As an example, consider a futures contract with a delivery date of July 15, 2000, and a quoted price of $104.40. Since Financial Derivatives Toolbox software does not directly support this instrument, you must create it using the function instaddfield. Use these parameters to create instruments:

• Type: Future

• Field names: Delivery and Price

• Data: Delivery is July 15, 2000, and price is $104.40.

Enter the data into MATLAB^® software:

Type = 'Future';
FieldName = {'Delivery', 'Price'};
Data = {'Jul-15-2000', 104.4};

Finally, create the portfolio with a single instrument:

Port = instaddfield('Type', Type, 'FieldName', FieldName,... 
'Data', Data);

Now use the function instdisp to examine the resulting single-instrument portfolio:

instdisp(Port)

Index   Type   Delivery      Price
1       Future 15-Jul-2000   104.4

Because your portfolio Port has the same structure as those created using the function instadd, you can combine portfolios created using instadd with portfolios created using instaddfield. For example, you can now add two cap instruments to Port with instadd.

Strike = [0.06; 0.07];
Settle = '08-Feb-2000';
Maturity = '15-Jan-2003';
 
Port = instadd(Port, 'Cap', Strike, Settle, Maturity);

View the resulting portfolio using instdisp.

instdisp(Port)

Index   Type   Delivery      Price
1       Future 15-Jul-2000   104.4
 
Index Type Strike Settle      Maturity    CapReset  Basis Pricipal
2     Cap  0.06   08-Feb-2000 15-Jan-2003 1         0     100 
3     Cap  0.07   08-Feb-2000 15-Jan-2003 1         0     100 

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Searching or Subsetting a Portfolio

Financial Derivatives Toolbox software provides functions that enable you to:

• Find specific instruments within a portfolio.

• Create a subset portfolio consisting of instruments selected from a larger portfolio.

The instfind function finds instruments with a specific parameter value; it returns an instrument index (position) in a large instrument set. The instselect function, on the other hand, subsets a large instrument set into a portfolio of instruments with designated parameter values; it returns an instrument set (portfolio) rather than an index.

instfind

The general syntax for instfind is

IndexMatch = instfind(InstSet, 'FieldName', FieldList, 'Data',...
DataList, 'Index', IndexSet, 'Type', TypeList)

InstSet is the instrument set to search. Within InstSet instruments categorized by type, each type can have different data fields. The stored data field is a row vector or string for each instrument.

The FieldList, DataList, and TypeList arguments indicate values to search for in the FieldName, Data, and Type data fields of the instrument set. FieldList is a cell array of field name(s) specific to the instruments. DataList is a cell array or matrix of acceptable values for the parameter(s) specified in FieldList. FieldName and Data (consequently, FieldList and DataList) parameters must appear together or not at all.

IndexSet is a vector of integer index(es) designating positions of instruments in the instrument set to check for matches; the default is all indices available in the instrument set. TypeList is a string or cell array of strings restricting instruments to match one of the TypeList types; the default is all types in the instrument set.

IndexMatch is a vector of positions of instruments matching the input criteria. Instruments are returned in IndexMatch if all the FieldName, Data, Index, and Type conditions are met. An instrument meets an individual field condition if the stored FieldName data matches any of the rows listed in the DataList for that FieldName.

instfind Examples.   The examples use the provided MAT-file deriv.mat.

The MAT-file contains an instrument set, HJMInstSet, that contains eight instruments of seven types.

load deriv.mat
instdisp(HJMInstSet)

Index Type CouponRate Settle       Maturity     Period Basis .........   Name  Quantity
     Bond 0.04       01-Jan-2000  01-Jan-2003  1      NaN.........     4% bond  100 
2     Bond 0.04       01-Jan-2000  01-Jan-2004  2      NaN.........    4% bond  50 


Index Type    UnderInd OptSpec Strike ExerciseDates  AmericanOpt Name        Quantity
3     OptBond 2        call    101    01-Jan-2003    NaN         Option 101  -50     
 
Index Type  CouponRate Settle      Maturity     FixedReset Basis Principal Name Quantity
4     Fixed 0.04       01-Jan-2000 01-Jan-2003    1          NaN   NaN       4% Fixed 80 
 
Index Type  Spread Settle      Maturity   FloatReset  Basis Principal Name       Quantity
5     Float 20     01-Jan-2000 01-Jan-2003 1           NaN   NaN       20BP Float 8       
 
Index Type Strike Settle         Maturity      CapReset Basis Principal Name   Quantity
6     Cap  0.03   01-Jan-2000    01-Jan-2004    1        NaN   NaN       3% Cap 30      
 
Index Type  Strike Settle      Maturity     FloorReset Basis Principal Name     Quantity
7     Floor 0.03 01-Jan-2000 01-Jan-2004    1          NaN   NaN         3% Floor 40      
 
Index Type LegRate   Settle     Maturity  LegReset Basis Principal LegType Name Quantity

8     Swap [0.06 20] 01-Jan-2000   01-Jan-2003  [1  1]   NaN   NaN  [NaN]  6%/20BP Swap 10

Find all instruments with a maturity date of January 01, 2003.

Mat2003 = ... 
instfind(HJMInstSet,'FieldName','Maturity','Data','01-Jan-2003')

Mat2003 =

     1
     4
     5
     8

Find all cap and floor instruments with a maturity date of January 01, 2004.

CapFloor = instfind(HJMInstSet,... 
'FieldName','Maturity','Data','01-Jan-2004', 'Type',... 
{'Cap';'Floor'})

CapFloor =

     6
     7

Find all instruments where the portfolio is long or short a quantity of 50.

Pos50 = instfind(HJMInstSet,'FieldName',... 
'Quantity','Data',{'50';'-50'})

Pos50 =

     2
     3

instselect

The syntax for instselect is the same syntax as for instfind. instselect returns a full portfolio instead of indexes into the original portfolio. Compare the values returned by both functions by calling them equivalently.

Previously you used instfind to find all instruments in HJMInstSet with a maturity date of January 01, 2003.

Mat2003 = ... 
instfind(HJMInstSet,'FieldName','Maturity','Data','01-Jan-2003')

Mat2003 =

     1
     4
     5
     8

Now use the same instrument set as a starting point, but execute the instselect function instead, to produce a new instrument set matching the identical search criteria.

Select2003 = ... 
instselect(HJMInstSet,'FieldName','Maturity','Data',... 
'01-Jan-2003')

instdisp(Select2003)

Index Type CouponRate Settle       Maturity   Period Basis .........    Name   Quantity
1     Bond 0.04       01-Jan-2000  01-Jan-2003  1      NaN.........       4% bond   100 

Index Type  CouponRate Settle      Maturity  FixedReset Basis Principal Name    Quantity
2     Fixed 0.04       01-Jan-2000 01-Jan-2003    1          NaN   NaN      4% Fixed  80 
 
Index Type  Spread Settle      Maturity   FloatReset  Basis Principal Name       Quantity
3     Float 20     01-Jan-2000 01-Jan-2003 1           NaN   NaN       20BP Float   8   
 
Index Type LegRate   Settle     Maturity  LegReset Basis Principal LegType Name Quantity
4     Swap [0.06 20] 01-Jan-2000  01-Jan-2003  [1  1]  NaN   NaN  [NaN] 6%/20BP Swap 10 

instselect Examples.   These examples use the portfolio ExampleInst provided with the MAT-file InstSetExamples.mat.

load InstSetExamples.mat
instdisp(ExampleInst)

Index Type   Strike Price Opt  Contracts
1     Option  95    12.2  Call     0    
2     Option 100     9.2  Call     0    
3     Option 105     6.8  Call  1000    
 
Index Type    Delivery       F     Contracts
4     Futures 01-Jul-1999    104.4 -1000    
 
Index Type   Strike Price Opt  Contracts
5     Option 105     7.4  Put  -1000    
6     Option  95     2.9  Put      0    
 
Index Type  Price Maturity       Contracts
7     TBill 99    01-Jul-1999    6        

The instrument set contains 3 instrument types: Option, Futures, and TBill. Use instselect to make a new instrument set containing only options struck at 95. In other words, select all instruments containing the field Strike and with the data value for that field equal to 95.

InstSet = instselect(ExampleInst,'FieldName','Strike','Data',95);

instdisp(InstSet)

Index Type   Strike Price Opt  Contracts
1     Option  95    12.2  Call     0    
2     Option  95     2.9  Put      0    

You can use all the various forms of instselect and instfind to locate specific instruments within this instrument set.

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Portfolio Creation

Examples

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