Financial Derivatives Toolbox

Financial Instruments

The toolbox provides a set of functions that perform computations upon portfolios containing up to seven types of financial instruments.

Bond.   A long-term debt security with preset interest rate and maturity, by which the principal and interest must be paid.

Bond Options.   Puts and calls on portfolios of bonds.

Fixed Rate Note.   A long-term debt security with preset interest rate and maturity, by which the interest must be paid. The principal may or may not be paid at maturity. In this version of the Financial Derivatives Toolbox, the principal is always paid at maturity.

Floating Rate Note.   A security similar to a bond, but in which the note's interest rate is reset periodically, relative to a reference index rate, to reflect fluctuations in market interest rates.

Cap.   A contract which includes a guarantee that sets the maximum interest rate to be paid by the holder, based upon an otherwise floating interest rate.

Floor.   A contract which includes a guarantee setting the minimum interest rate to be received by the holder, based upon an otherwise floating interest rate.

Swap.   A contract between two parties obligating the parties to exchange future cash flows. This version of the Financial Derivatives Toolbox handles only the vanilla swap, which is composed of a floating rate leg and a fixed rate leg.

Additionally, the toolbox provides functions for the creation and pricing of arbitrary cash flow instruments based upon zero coupon bonds or upon the BDT or HJM models.

Trees

Hedging