Financial Derivatives Toolbox™

hwsens

Instrument prices and sensitivities from HW interest-rate tree

Syntax

[Delta, Gamma, Vega, Price] = hwsens(HWTree, InstSet, Options)

Arguments

`HWTree`	Interest-rate tree structure created by `hwtree`.
`InstSet`	Variable containing a collection of `NINST` instruments. Instruments are categorized by type; each type can have different data fields. The stored data field is a row vector or string for each instrument.
`Options`	(Optional) Derivatives pricing options structure created with `derivset`.

Description

[Delta, Gamma, Vega, Price] = hwsens(HWTree, InstSet,Options) computes instrument sensitivities and prices for instruments using an interest-rate tree created with the hwtree function. NINST instruments from a financial instrument variable, InstSet, are priced. hwsens handles instrument types: 'Bond', 'CashFlow', 'OptBond', 'OptEmBond', 'Fixed', 'Float', 'Cap', 'Floor', 'Swap'. See instadd for information on instrument types.

Delta is an NINST-by-1 vector of deltas, representing the rate of change of instrument prices with respect to changes in the interest rate. Delta is computed by finite differences in calls to hwtree. See hwtree for information on the observed yield curve.

Gamma is an NINST-by-1 vector of gammas, representing the rate of change of instrument deltas with respect to the changes in the interest rate. Gamma is computed by finite differences in calls to hwtree.

Vega is an NINST-by-1 vector of vegas, representing the rate of change of instrument prices with respect to the changes in the volatility . Vega is computed by finite differences in calls to hwtree. See hwvolspec for information on the volatility process.

Note All sensitivities are returned as dollar sensitivities. To find the per-dollar sensitivities, divide by the respective instrument price.

Price is an NINST-by-1 vector of prices of each instrument. The prices are computed by backward dynamic programming on the interest-rate tree. If an instrument cannot be priced, NaN is returned.

Delta and Gamma are calculated based on yield shifts of 100 basis points. Vega is calculated based on a 1% shift in the volatility process.

Examples

Load the tree and instruments from a data file. Compute Delta and Gamma for the cap and bond instruments contained in the instrument set.

load deriv.mat; 
HWSubSet = instselect(HWInstSet,'Type', {'Bond', 'Cap'}); 

instdisp(HWSubSet)

Index Type CouponRate Settle        Maturity     Period  Name ...
1     Bond 0.04       01-Jan-2004   01-Jan-2007  1       4% Bond
2     Bond 0.04       01-Jan-2004   01-Jan-2008  1       4% Bond
     
Index Type Strike Settle      Maturity     CapReset...  Name ...  
3     Cap  0.06   01-Jan-2004 01-Jan-2008  1            6% Cap 
     
[Delta, Gamma] = hwsens(HWTree, HWSubSet)

Delta =

       -291.26
       -374.64
         59.55

Gamma =

        858.41
       1460.88
       4843.65

hwsens

Syntax

Arguments

Description

Examples

See Also