bdtprice (Financial Derivatives Toolbox)

Fixed income instrument prices by BDT interest rate tree

Syntax

[Price, PriceTree] = bdtprice(BDTTree, InstSet, Options)

Arguments

BDTTree
Interest rate tree structure created by bdttree.

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.

`BDTTree`	Interest rate tree structure created by `bdttree`.
`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

[Price, PriceTree] = bdtprice(BDTTree, InstSet, Options) computes arbitrage free prices for instruments using an interest rate tree created with bdttree. All instruments contained in a financial instrument variable, InstSet, are priced.

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

PriceTree is a MATLAB structure of trees containing vectors of instrument prices and accrued interest, and a vector of observation times for each node.

PriceTree.PTree contains the clean prices.

PriceTree.AITree contains the accrued interest.

PriceTree.tObs contains the observation times.

bdtprice handles instrument types: 'Bond', 'CashFlow', 'OptBond', 'Fixed', 'Float', 'Cap', 'Floor', 'Swap'. See instadd to construct defined types.

Related single-type pricing functions are:

bondbybdt: Price a bond by a BDT tree.
capbybdt: Price a cap by a BDT tree.
cfbybdt: Price an arbitrary set of cash flows by a BDT tree.
fixedbybdt: Price a fixed rate note by a BDT tree.
floatbybdt: Price a floating rate note by a BDT tree.
floorbybdt: Price a floor by a BDT tree.
optbndbybdt: Price a bond option by a BDT tree.
swapbybdt: Price a swap by a BDT tree.

Examples

Load the BDT tree and instruments from the data file deriv.mat. Price the cap and bond instruments contained in the instrument set.

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

instdisp(BDTSubSet)

Index Type   CouponRate Settle      Maturity    Period  Name ... 
1     Bond   0.1        01-Jan-2000 01-Jan-2003 1       10% bond
2     Bond   0.1        01-Jan-2000 01-Jan-2004 2       10% bond
     
Index Type Strike Settle      Maturity     CapReset...  Name ...  
3     Cap  0.15   01-Jan-2000 01-Jan-2004  1            15% Cap 
     
[Price, PriceTree] = bdtprice(BDTTree, BDTSubSet);

Warning: Not all cash flows are aligned with the tree. Result will 
be approximated.

Price =

   95.5030
   93.9079
    1.4863

You can use treeviewer to see the prices of these three instruments along the price tree.

Functions - Alphabetical List bdtsens