| Version 4.0 (R14SP3) Financial Derivatives Toolbox™ Software Release Notes | |
This table summarizes what's new in Version 4.0 (R14SP3):
| New Features and Changes | Version Compatibility Considerations | Fixed Bugs and Known Problems | Related Documentation at Web Site |
|---|---|---|---|
Yes | No | No |
New features and changes introduced in this version are:
Two interest rate models have been introduced with Version 4.0:
Hull-White (HW) model
The Hull-White model incorporates the initial term structure of interest rates and the volatility term structure to build a trinomial recombining tree of short rates. The resulting tree is used to value interest rate-dependent securities. The implementation of the HW model in Financial Derivatives Toolbox™ software is limited to one factor.
Black-Karasinski (BK) model
The BK model is a single-factor, log-normal version of the Hull-White model.
The following tables summarize the Black-Karasinski and Hull-White functions by their category of usage.
Function | Purpose |
|---|---|
Instrument prices from Black-Karasinski tree. | |
Instrument prices and sensitivities from Black-Karasinski tree. | |
Specify time structure for Black-Karasinski tree. | |
Construct Black-Karasinski interest-rate tree. | |
Specify Black-Karasinski interest-rate volatility process. |
Function | Purpose |
|---|---|
Instrument prices from Hull-White tree. | |
Instrument prices and sensitivities from Hull-White tree. | |
Specify time structure for Hull-White tree. | |
Construct Hull-White interest-rate tree. | |
Specify Hull-White interest-rate volatility process. |
Function | Purpose |
|---|---|
Price bond from Black-Karasinski interest-rate tree. | |
Price cap instrument from Black-Karasinski interest-rate tree. | |
Price arbitrary set of cash flows from Black-Karasinski interest-rate tree. | |
Price fixed-rate note from Black-Karasinski interest-rate tree. | |
Price floating-rate note from Black-Karasinski interest-rate tree. | |
Price floor instrument from Black-Karasinski interest-rate tree. | |
Price bond option from Black-Karasinski interest-rate tree. | |
Price swap instrument from Black-Karasinski interest-rate tree. |
Function | Purpose |
|---|---|
Price bond from Hull-White interest-rate tree. | |
Price cap instrument from Hull-White interest-rate tree. | |
Price arbitrary set of cash flows from Hull-White interest-rate tree. | |
Price fixed-rate note from Hull-White interest-rate tree. | |
Price floating-rate note from Hull-White interest-rate tree. | |
Price floor instrument from Hull-White interest-rate tree. | |
Price bond option from Hull-White interest-rate tree. | |
Price swap instrument from HJM interest-rate tree. |
Function | Purpose |
|---|---|
Convert inverse discount tree to interest-rate tree. | |
Create recombining trinomial tree. | |
Extract entries from node of recombining trinomial tree. | |
Retrieve shape of recombining trinomial tree. |
The interest-rate or price trees supported in this toolbox can be either binomial (two branches per node) or trinomial (three branches per node). Typically, binomial trees assume that underlying interest rates or prices can only either increase or decrease at each node. Trinomial trees allow for a more complex movement of rates or prices. With trinomial trees the movement of rates or prices at each node is unrestricted (for example, up-up-up or unchanged-down-down).
The treeviewer function, which provides a graphical display of rates and prices, has been modified to display recombining trinomial trees.
| Version 4.0.1 (R2006a) Financial Derivatives Toolbox™ Software | Version 3.0 (R14) Financial Derivatives Toolbox™ Software | |
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