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Konstantinos

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08 Sep 2011 Credit Risk Modeling with MATLAB These are the supporting MATLAB files for the MathWorks webinar of the same name. Author: Ameya Deoras

Michael thank you for this great demo
I have some question regarding the valuation of bonds in the |Credit_VaR.m| file.

1. Regarding the valuation date I guess it must be the one year ahead date, since we are using one-year forward interest rates
2. If we assume (as in Credit Metrics – technical Document. p27), a bond with Face value: 100, Maturity: 5 years, Coupon: 6%, and a one-year forward zero curve, Year 1 3.72 %,Year 2 4.32 %,Year 3 4.93 %,Year 4 5.32 %
Then we will have a cash flow [6 6 6 6 106] and a price
P = 6 + 6/(1+3.72/100) + 6/(1+4.32/100)^2 + 6/(1+4.93/100)^3 + 106/(1+5.32/100)^4 = 108.6430

However if we use the prbyzero function (as you use in Credit_VaR.m file)
prbyzero([datenum('1-Dec-2005'),0.06],datenum('1-Dec-2001'),[3.72 4.32 4.93 5.32]'/100,datenum({'1-Dec-2001';'1-Dec-2002';'1-Dec-2003';'1-Dec-2004'})')
will get 102.5294

I think this happens because with the above syntax we lose the coupon at the end of the first year.
Is there any syntax that can help us price correctly the bond N - years ahead?

I suppose that there is no difference in results as
we are interesting in the difference of original and new portfolio values (please confirm)
thank you
Kostas

08 Sep 2011 Credit Risk Modeling with MATLAB These are the supporting MATLAB files for the MathWorks webinar of the same name. Author: Ameya Deoras

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