Financial Derivatives Toolbox

Pricing and Sensitivity from Interest Term Structure

The Financial Derivatives Toolbox contains a family of functions that finds the price and sensitivities of several financial instruments based on interest rate curves. For information, see:

• Pricing for a discussion on using the intenvprice function to price a portfolio of instruments based on a set of zero curves.
• Sensitivity for a discussion on computing delta and gamma sensitivities with the intenvsens function.

The instruments can be presented to the functions as a portfolio of different types of instruments or as groups of instruments of the same type. The current version of the toolbox can compute price and sensitivities for four instrument types using interest rate curves:

• Bonds
• Fixed Rate Notes
• Floating Rate Notes
• Swaps

In addition to these instruments, the toolbox also supports the calculation of price and sensitivities of arbitrary sets of cash flows.

Note that options and interest rates floors and caps are absent from the above list of supported instruments. These instruments are not supported because their pricing and sensitivity function require a stochastic model for the evolution of interest rates. The interest rate term structure used for pricing is treated as deterministic, and as such is not adequate for pricing these instruments.

The Financial Derivatives Toolbox additionally contains functions that use the Heath-Jarrow-Morton (HJM) model to compute prices and sensitivities for financial instruments. The HJM model supports computations involving options and interest rate floors and caps. See Pricing and Sensitivity from HJM for information on computing price and sensitivities of financial instruments using the Heath-Jarrow-Morton model.

Interest Rate Term Structure

Pricing