OptionEmbeddedFloatBond
Description
Create and price a OptionEmbeddedFloatBond
instrument
object for one or more Option Embedded Float Bond instruments using this
workflow:
Use
fininstrument
to create anOptionEmbeddedFloatBond
instrument object for one or more Option Embedded Float Bond instruments.Use
finmodel
to specify aHullWhite
,BlackKarasinski
,BlackDermanToy
,BraceGatarekMusiela
,SABRBraceGatarekMusiela
,CoxIngersollRoss
, orLinearGaussian2F
model for theOptionEmbeddedFloatBond
instrument object.Choose a pricing method.
When using a
HullWhite
,BlackKarasinski
,CoxIngersollRoss
, orBlackDermanToy
model, usefinpricer
to specify anIRTree
pricing method for one or moreOptionEmbeddedFloatBond
instruments.When using a
HullWhite
,BlackKarasinski
,BraceGatarekMusiela
,SABRBraceGatarekMusiela
, orLinearGaussian2F
model, usefinpricer
to specify anIRMonteCarlo
pricing method for one or moreOptionEmbeddedFloatBond
instruments.
For more information on this workflow, see Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments.
For more information on the available models and pricing methods for an
OptionEmbeddedFloatBond
instrument, see Choose Instruments, Models, and Pricers.
Creation
Syntax
Description
creates a OptionEmbeddedFloatBondObj
= fininstrument(InstrumentType
,'Spread
',spread_value,'Maturity
',maturity_date,'CallSchedule
',call_schedule_value)OptionEmbeddedFloatBond
object for one or more
Option Embedded Float Bond instruments by specifying
InstrumentType
and the required name-value pair
arguments Spread
, Maturity
, and
CallSchedule
sets the properties
using required name-value pair arguments.
OptionEmbeddedFloatBond
supports vanilla bonds with
embedded options and amortizing bonds with embedded options.
creates a OptionEmbeddedFloatBondObj
= fininstrument(InstrumentType
,'Spread
',spread_value,'Maturity
',maturity_date,'PutSchedule
',put_schedule_value)OptionEmbeddedFloatBond
object for one or more
Option Embedded Float Bond instruments by specifying
InstrumentType
and the required name-value pair
arguments Spread
, Maturity
, and
PutSchedule
sets the properties
using required name-value pair arguments.
sets optional properties
using additional name-value pairs in addition to the required arguments in
the previous syntax. For example, OptionEmbeddedFloatBondObj
= fininstrument(___,Name,Value
)OptionEmbeddedFloatBondObj =
fininstrument("OptionEmbeddedFloatBond",'Spread',0.01,'Maturity',datetime(2019,1,30),'Period',4,'Basis',5,'Principal',1000,'FirstCouponDate',datetime(2016,1,30),'EndMonthRule',1,'CallSchedule',schedule,'CallExerciseStyle',"american",'ProjectionCurve',ratecurve_obj,'Name',"optionembeddedfloatbond")
.
You can specify multiple name-value pairs.
Input Arguments
InstrumentType
— Instrument type
string with value
"OptionEmbeddedFloatBond"
| string array with values of
"OptionEmbeddedFloatBond"
| character vector with value
'OptionEmbeddedFloatBond'
| cell array of character vectors with values of
'OptionEmbeddedFloatBond'
Instrument type, specified as a string with the value of
"OptionEmbeddedFloatBond"
, a character vector
with the value of 'OptionEmbeddedFloatBond'
, an
NINST
-by-1
string array with
values of "OptionEmbeddedFloatBond"
, or an
NINST
-by-1
cell array of
character vectors with values of
'OptionEmbeddedFloatBond'
.
Data Types: char
| cell
| string
Specify required
and optional pairs of arguments as
Name1=Value1,...,NameN=ValueN
, where
Name
is the argument name and Value
is
the corresponding value. Name-value arguments must appear after other arguments,
but the order of the pairs does not matter.
Before R2021a, use commas to separate each name and value, and enclose
Name
in quotes.
Example: OptionEmbeddedFloatBondObj =
fininstrument("OptionEmbeddedFloatBond",'Spread',0.01,'Maturity',datetime(2019,1,30),'Period',4,'Basis',5,'Principal',1000,'FirstCouponDate',datetime(2016,1,30),'EndMonthRule',1,'CallSchedule',schedule,'CallExerciseStyle',"american",'ProjectionCurve',ratecurve_obj,'Name',"optionembeddedfloatbond")
OptionEmbeddedFloatBond
Name-Value Pair
ArgumentsSpread
— Number of basis points over the reference rate
nonnegative numeric | vector of nonnegative numeric
Number of basis points over the reference rate, specified as the
comma-separated pair consisting of 'Spread'
and a
scalar nonnegative numeric or an
NINST
-by-1
vector of
nonnegative numeric.
Data Types: double
Maturity
— Maturity date
datetime array | string array | date character vector
Maturity date, specified as the comma-separated pair consisting of
'Maturity'
and a scalar or an
NINST
-by-1
vector using a
datetime array, string array, or date character vectors.
To support existing code, OptionEmbeddedFloatBond
also
accepts serial date numbers as inputs, but they are not recommended.
CallSchedule
— Call schedule
timetable
Call schedule, specified as the comma-separated pair consisting of
'CallSchedule'
and a timetable of call dates
and strikes.
If you use a date character vector or date string for the dates in
this timetable, the format must be recognizable by datetime
because
the CallSchedule
property is stored as a datetime.
Note
The OptionEmbeddedFloatBond
instrument
supports either CallSchedule
and
CallExerciseStyle
or
PutSchedule
and
PutExerciseStyle
, but not both.
If you are creating one or more
OptionEmbeddedFloatBond
instruments
and use a timetable, the timetable specification applies to
all of the OptionEmbeddedFloatBond
instruments. CallSchedule
does not accept
an NINST
-by-1
cell
array of timetables as input.
Data Types: timetable
PutSchedule
— Call schedule
timetable
Put schedule, specified as the comma-separated pair consisting of
'PutSchedule'
and a timetable of call dates
and strikes.
If you use a date character vector or date string for dates in
this timetable, the format must be recognizable by datetime
because
the PutSchedule
property is stored as a datetime.
Note
The OptionEmbeddedFloatBond
instrument
supports either CallSchedule
and
CallExerciseStyle
or
PutSchedule
and
PutExerciseStyle
, but not both.
If you are creating one or more
OptionEmbeddedFloatBond
instruments
and use a timetable, the timetable specification applies to
all of the OptionEmbeddedFloatBond
instruments. PutSchedule
does not accept
an NINST
-by-1
cell
array of timetables as input.
Data Types: timetable
OptionEmbeddedFloatBond
Name-Value Pair
ArgumentsReset
— Frequency of payments per year
2
(default) | scalar integer | vector of integers
Frequency of payments per year, specified as the comma-separated
pair consisting of 'Reset'
and a scalar integer
or an NINST
-by-1
vector of
integers. Values for Reset
are:
1
, 2
,
3
, 4
, 6
,
and 12
.
Data Types: double
CallExerciseStyle
— Call option exercise style
"European"
(default) | string with value "European"
,
"American"
, or
"Bermudan"
| string array with values of "European"
,
"American"
, or
"Bermudan"
| character vector with value 'European'
,
'American'
, or
'Bermudan'
| cell array of character vectors with values of
'European'
, 'American'
, or
'Bermudan'
Call option exercise style, specified as the comma-separated pair
consisting of 'CallExerciseStyle'
and a scalar
string or character vector or an
NINST
-by-1
cell array of
character vectors or string array.
Note
The CallSchedule
is a timetable of
call dates and strikes. If you do not specify a
CallExerciseStyle
, then based on the
CallSchedule
specification, a
default value of CallExerciseStyle
is
assigned as follows:
If there is one exercise date in the
CallSchedule
, then theCallExerciseStyle
is an"European"
.If there are two exercise dates in the
CallSchedule
, then theCallExerciseStyle
is an"American"
with a start date and maturity.If there are more than two exercise dates in the
CallSchedule
, then theCallExerciseStyle
is an"Bermudan"
.
If the you define a CallExerciseStyle
and this is not consistent with what you have specified in
the CallSchedule
, you receive an error
message.
Data Types: string
| cell
| char
PutExerciseStyle
— Put option exercise style
"European"
(default) | string with value "European"
,
"American"
, or
"Bermudan"
| string array with values of "European"
,
"American"
, or
"Bermudan"
| character vector with value 'European'
,
'American'
, or
'Bermudan'
| cell array of character vectors with values of
'European'
, 'American'
, or
'Bermudan'
Put option exercise style, specified as the comma-separated pair
consisting of 'PutExerciseStyle'
and a scalar
string or character vector or an
NINST
-by-1
cell array of
character vectors or string array.
Note
The PutSchedule
is a timetable of
call dates and strikes. If you do not specify a
PutExerciseStyle
, then based on the
PutSchedule
specification, a
default value of PutExerciseStyle
is
assigned as follows:
If there is one exercise date in the
PutSchedule
, then thePutExerciseStyle
is an"European"
.If there are two exercise dates in the
PutSchedule
, then thePutExerciseStyle
is an"American"
with a start date and maturity.If there are more than two exercise dates in the
PutSchedule
, then thePutExerciseStyle
is an"Bermudan"
.
If the you define a PutExerciseStyle
and this is not consistent with what you have specified in
the PutSchedule
, you receive an error
message.
Data Types: string
| cell
| char
Basis
— Day count basis
0
(actual/actual) (default) | scalar integer from 0
to
13
| vector of integers from 0
to
13
Day count basis, specified as the comma-separated pair consisting
of 'Basis'
and scalar integer or an
NINST
-by-1
vector of
integers using the following values:
0 — actual/actual
1 — 30/360 (SIA)
2 — actual/360
3 — actual/365
4 — 30/360 (PSA)
5 — 30/360 (ISDA)
6 — 30/360 (European)
7 — actual/365 (Japanese)
8 — actual/actual (ICMA)
9 — actual/360 (ICMA)
10 — actual/365 (ICMA)
11 — 30/360E (ICMA)
12 — actual/365 (ISDA)
13 — BUS/252
For more information, see Basis.
Data Types: double
Principal
— Notional principal amount or principal value schedule
100
(default) | scalar numeric | numeric vector | timetable
Notional principal amount or principal value schedule, specified
as the comma-separated pair consisting of
'Principal'
and a scalar numeric or an
NINST
-by-1
numeric vector
or a timetable.
Principal
accepts a timetable
, where the
first column is dates and the second column is the associated
notional principal value. The date indicates the last day that the
principal value is valid.
Note
If you are creating one or more
OptionEmbeddedFloatBond
instruments and
use a timetable, the timetable specification applies to all of
the OptionEmbeddedFloatBond
instruments.
Principal
does not accept an
NINST
-by-1
cell array
of timetables as input.
Data Types: double
| timetable
DaycountAdjustedCashFlow
— Flag indicating whether cash flow adjusts for day count convention
false
(default) | scalar logical value of true
or
false
| vector of logicals with values of true
or
false
Flag indicating whether cash flow adjusts for day count
convention, specified as the comma-separated pair consisting of
'DaycountAdjustedCashFlow'
and a scalar
logical or an NINST
-by-1
vector of logicals with values of true
or
false
.
Data Types: logical
BusinessDayConvention
— Business day conventions
"actual"
(default) | string | string array | character vector | cell array of character vectors
Business day conventions, specified as the comma-separated pair
consisting of 'BusinessDayConvention'
and a
scalar string or character vector or an
NINST
-by-1
cell array of
character vectors or string array. The selection for business day
convention determines how nonbusiness days are treated. Nonbusiness
days are defined as weekends plus any other date that businesses are
not open (for example, statutory holidays). Values are:
"actual"
— Nonbusiness days are effectively ignored. Cash flows that fall on non-business days are assumed to be distributed on the actual date."follow"
— Cash flows that fall on a nonbusiness day are assumed to be distributed on the following business day."modifiedfollow"
— Cash flows that fall on a nonbusiness day are assumed to be distributed on the following business day. However if the following business day is in a different month, the previous business day is adopted instead."previous"
— Cash flows that fall on a nonbusiness day are assumed to be distributed on the previous business day."modifiedprevious"
— Cash flows that fall on a nonbusiness day are assumed to be distributed on the previous business day. However if the previous business day is in a different month, the following business day is adopted instead.
Data Types: char
| cell
| string
Holidays
— Holidays used in computing business days
NaT
(default) | datetime array | string array | date character vector
Holidays used in computing business days, specified as the
comma-separated pair consisting of 'Holidays'
and
dates using an NINST
-by-1
vector of a datetime array, string array, or date character vectors.
For
example:
H = holidays(datetime('today'),datetime(2025,12,15)); OptionEmbeddedFixedBondObj = fininstrument("OptionEmbeddedFixedBond",'CouponRate',0.34,'Maturity',datetime(2025,12,15),... 'CallSchedule',schedule,'CallExerciseStyle',"american",'Holidays',H)
To support existing code, OptionEmbeddedFloatBond
also
accepts serial date numbers as inputs, but they are not recommended.
EndMonthRule
— End-of-month rule flag for generating dates when Maturity
is end-of-month date for month with 30
or fewer days
true
(in effect) (default) | scalar logical value of true
or
false
| vector of logicals with values of true
or
false
End-of-month rule flag for generating dates when
Maturity
is an end-of-month date for a month
with 30 or fewer days, specified as the comma-separated pair
consisting of 'EndMonthRule'
and a scalar logical
or an NINST
-by-1
vector of
logicals values of true
or
false
.
If you set
EndMonthRule
tofalse
, the software ignores the rule, meaning that a payment date is always the same numerical day of the month.If you set
EndMonthRule
totrue
, the software sets the rule on, meaning that a payment date is always the last actual day of the month.
Data Types: logical
IssueDate
— Bond issue date
NaT
(default) | datetime array | string array | date character vector
Bond issue date, specified as the comma-separated pair consisting
of 'IssueDate'
and a scalar or an
NINST
-by-1
vector using a
datetime array, string array, or date character vectors.
To support existing code, OptionEmbeddedFloatBond
also
accepts serial date numbers as inputs, but they are not recommended.
If you use date character vectors or strings, the format must be
recognizable by datetime
because
the IssueDate
property is stored as a
datetime.
FirstCouponDate
— Irregular first coupon date
NaT
(default) | datetime array | string array | date character vector
Irregular first coupon date, specified as the comma-separated pair
consisting of 'FirstCouponDate'
and a scalar or
an NINST
-by-1
vector using a
datetime array, string array, or date character vectors.
To support existing code, OptionEmbeddedFloatBond
also
accepts serial date numbers as inputs, but they are not recommended.
When FirstCouponDate
and
LastCouponDate
are both specified,
FirstCouponDate
takes precedence in
determining the coupon payment structure. If you do not specify
FirstCouponDate
, the cash flow payment dates
are determined from other inputs.
If you use date character vectors or strings, the format must be
recognizable by datetime
because
the FirstCouponDate
property is stored as a
datetime.
LastCouponDate
— Irregular last coupon date
NaT
(default) | datetime array | string array | date character vector
Irregular last coupon date, specified as the comma-separated pair
consisting of 'LastCouponDate'
and a scalar or an
NINST
-by-1
vector using a
datetime array, string array, or date character vectors.
To support existing code, OptionEmbeddedFloatBond
also
accepts serial date numbers as inputs, but they are not recommended.
If you specify LastCouponDate
but not
FirstCouponDate
,
LastCouponDate
determines the coupon
structure of the bond. The coupon structure of a bond is truncated
at LastCouponDate
, regardless of where it falls,
and is followed only by the bond's maturity cash flow date. If you
do not specify LastCouponDate
, the cash flow
payment dates are determined from other inputs.
If you use date character vectors or strings, the format must be
recognizable by datetime
because
the LastCouponDate
property is stored as a
datetime.
StartDate
— Forward starting date of payments
NaT
(default) | datetime array | string array | date character vector
Forward starting date of payments, specified as the
comma-separated pair consisting of 'StartDate'
and a scalar or an NINST
-by-1
vector using a datetime array, string array, or date character
vectors.
To support existing code, OptionEmbeddedFloatBond
also
accepts serial date numbers as inputs, but they are not recommended.
If you use date character vectors or strings, the format must be
recognizable by datetime
because
the StartDate
property is stored as a
datetime.
Name
— User-defined name for instrument
" "
(default) | string | string array | character vector | cell array of character vectors
User-defined name for the instrument, specified as the
comma-separated pair consisting of 'Name'
and a
scalar string or character vector or an
NINST
-by-1
cell array of
character vectors or string array.
Data Types: char
| cell
| string
Properties
Spread
— Number of basis points over the reference rate
scalar nonnegative numeric | vector of nonnegative numeric
Number of basis points over the reference rate, returned as a scalar
nonnegative numeric or an NINST
-by-1
vector of nonnegative numeric values.
Data Types: double
Maturity
— Maturity date
scalar datetime | vector of datetimes
Maturity date, returned as a scalar datetime or an
NINST
-by-1
vector of
datetimes.
Data Types: datetime
CallSchedule
— Call schedule
timetable
Call schedule, returned as a timetable.
Data Types: cell
| datetime
PutSchedule
— Call schedule
timetable
Put schedule, returned as a timetable.
Data Types: cell
| datetime
Reset
— Frequency of payments per year
2
(default) | scalar integer | vector of integers
Frequency of payments per year, returned as a scalar integer or an
NINST
-by-1
vector of
integers.
Data Types: double
Basis
— Day count basis
0
(actual/actual) (default) | scalar integer from 0
to 13
| vector of integers from 0
to
13
Day count basis, returned as a scalar integer or an
NINST
-by-1
vector of integers.
Data Types: double
Principal
— Notional principal amount or principal value schedule
100
(default) | scalar numeric | numeric vector | timetable
Notional principal amount or principal value schedule, returned as a
scalar numeric or an NINST
-by-1
numeric vector or a timetable.
Data Types: timetable
| double
DaycountAdjustedCashFlow
— Flag indicating whether cash flow adjusts for day count convention
false
(default) | scalar logical value of true
or
false
| vector of logicals with values of true
or
false
Flag indicating whether cash flow adjusted for day count convention,
returned as scalar logical or an
NINST
-by-1
vector of logicals with
values of true
or false
.
Data Types: logical
BusinessDayConvention
— Business day conventions
"actual"
(default) | string | string array
Business day conventions, returned as a string or an
NINST
-by-1
string array.
Data Types: string
Holidays
— Holidays used in computing business days
NaT
(default) | datetimes
Holidays used in computing business days, returned as an
NINST
-by-1
vector of
datetimes.
Data Types: datetime
EndMonthRule
— End-of-month rule flag for generating dates when Maturity
is end-of-month date for month with 30 or fewer
days
true
(in effect) (default) | scalar logical value of true
or
false
| vector of logicals with values of true
or
false
End-of-month rule flag for generating dates when
Maturity
is an end-of-month date for a month with 30
or fewer days, returned as a scalar logical or an
NINST
-by-1
vector of
logicals.
Data Types: logical
IssueDate
— Bond issue date
NaT
(default) | scalar datetime | vector of datetimes
Bond issue date, returned as a scalar datetime or an
NINST
-by-1
vector of
datetimes.
Data Types: datetime
FirstCouponDate
— Irregular first coupon date
NaT
(default) | scalar datetime | vector of datetimes
Irregular first coupon date, returned as a scalar datetime or an
NINST
-by-1
vector of datetimes.
Data Types: datetime
LastCouponDate
— Irregular last coupon date
NaT
(default) | scalar datetime | vector of datetimes
Irregular last coupon date, returned as a scalar datetime or an
NINST
-by-1
vector of
datetimes.
Data Types: datetime
StartDate
— Forward starting date of payments
NaT
(default) | scalar datetime
Forward starting date of payments, returned as a scalar datetime or an
NINST
-by-1
vector of datetimes.
Data Types: datetime
CallExerciseStyle
— Call option exercise style
"European"
(default) | string with value "European"
,
"American"
, or "Bermudan"
| string array with values of "European"
,
"American"
, or "Bermudan"
This property is read-only.
Call option exercise style, returned as a string or an
NINST
-by-1
string array with
values of "European"
, "American"
, or
"Bermudan"
.
Data Types: string
PutExerciseStyle
— Put option exercise style
"European"
(default) | string with value "European"
,
"American"
, or "Bermudan"
| string array with values of "European"
,
"American"
, or "Bermudan"
This property is read-only.
Put option exercise style, returned as a string or an
NINST
-by-1
string array with
values of "European"
, "American"
, or
"Bermudan"
.
Data Types: string
Name
— User-defined name for instrument
" "
(default) | string | string array
User-defined name for the instrument, returned as a string or an
NINST
-by-1
string array.
Data Types: string
Object Functions
setCallExercisePolicy | Set call exercise policy for OptionEmbeddedFixedBond ,
OptionEmbeddedFloatBond , or ConvertibleBond
instrument |
setPutExercisePolicy | Set put exercise policy for OptionEmbeddedFixedBond ,
OptionEmbeddedFloatBond , or ConvertibleBond
instrument |
Examples
Price OptionEmbeddedFloatBond
Instruments Using HullWhite
Model and IRTree
Pricer
This example shows the workflow to price American, European, and Bermudan exercise styles for three callable OptionEmbeddedFloatBond
instruments when you use a HullWhite
model and an IRTree
pricing method.
Create ratecurve
Object
Create a ratecurve
object using ratecurve
.
Settle = datetime(2018,1,1); ZeroTimes = calyears(1:10)'; ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]'; ZeroDates = Settle + ZeroTimes; Compounding = 1; ZeroCurve = ratecurve("zero",Settle,ZeroDates,ZeroRates, "Compounding",Compounding);
Create OptionEmbeddedFloatBond
Instrument Objects
Use fininstrument
to create three OptionEmbeddedFloatBond
instrument objects with different exercise styles.
Maturity = datetime(2024,1,1); % Option embedded float bond (Bermudan callable bond) Strike = [100; 100]; ExerciseDates = [datetime(2020,1,1); datetime(2024,1,1)]; Reset = 1; CallSchedule = timetable(ExerciseDates,Strike,'VariableNames',{'Strike Schedule'}); CallableBondBermudan = fininstrument("OptionEmbeddedFloatBond",'Maturity',Maturity,... 'Spread',0.025,'Reset',Reset, ... 'CallSchedule',CallSchedule,'CallExerciseStyle', "bermudan")
CallableBondBermudan = OptionEmbeddedFloatBond with properties: Spread: 0.0250 ProjectionCurve: [0x0 ratecurve] ResetOffset: 0 Reset: 1 Basis: 0 EndMonthRule: 1 Principal: 100 DaycountAdjustedCashFlow: 0 BusinessDayConvention: "actual" Holidays: NaT IssueDate: NaT FirstCouponDate: NaT LastCouponDate: NaT StartDate: NaT Maturity: 01-Jan-2024 CallDates: [2x1 datetime] PutDates: [0x1 datetime] CallSchedule: [2x1 timetable] PutSchedule: [0x0 timetable] CallExerciseStyle: "bermudan" PutExerciseStyle: [0x0 string] Name: ""
% Option embedded float bond (American callable bond) Strike = 100; ExerciseDates = datetime(2024,1,1); CallSchedule = timetable(ExerciseDates,Strike,'VariableNames',{'Strike Schedule'}); Reset = 1; CallableBondAmerican = fininstrument("OptionEmbeddedFloatBond",'Maturity',Maturity,... 'Spread',0.025,'Reset', Reset, ... 'CallSchedule',CallSchedule,'CallExerciseStyle',"american")
CallableBondAmerican = OptionEmbeddedFloatBond with properties: Spread: 0.0250 ProjectionCurve: [0x0 ratecurve] ResetOffset: 0 Reset: 1 Basis: 0 EndMonthRule: 1 Principal: 100 DaycountAdjustedCashFlow: 0 BusinessDayConvention: "actual" Holidays: NaT IssueDate: NaT FirstCouponDate: NaT LastCouponDate: NaT StartDate: NaT Maturity: 01-Jan-2024 CallDates: 01-Jan-2024 PutDates: [0x1 datetime] CallSchedule: [1x1 timetable] PutSchedule: [0x0 timetable] CallExerciseStyle: "american" PutExerciseStyle: [0x0 string] Name: ""
% Option embedded float bond (European callable bond) Strike = 100; ExerciseDates = datetime(2024,1,1); CallSchedule = timetable(ExerciseDates,Strike,'VariableNames',{'Strike Schedule'}); Reset = 1; CallableBondEuropean = fininstrument("OptionEmbeddedFloatBond",'Maturity',Maturity,... 'Spread',0.025,'Reset',Reset, ... 'CallSchedule',CallSchedule)
CallableBondEuropean = OptionEmbeddedFloatBond with properties: Spread: 0.0250 ProjectionCurve: [0x0 ratecurve] ResetOffset: 0 Reset: 1 Basis: 0 EndMonthRule: 1 Principal: 100 DaycountAdjustedCashFlow: 0 BusinessDayConvention: "actual" Holidays: NaT IssueDate: NaT FirstCouponDate: NaT LastCouponDate: NaT StartDate: NaT Maturity: 01-Jan-2024 CallDates: 01-Jan-2024 PutDates: [0x1 datetime] CallSchedule: [1x1 timetable] PutSchedule: [0x0 timetable] CallExerciseStyle: "european" PutExerciseStyle: [0x0 string] Name: ""
Create HullWhite
Model Object
Use finmodel
to create a HullWhite
model object.
VolCurve = 0.01; AlphaCurve = 0.1; HWModel = finmodel("HullWhite",'alpha',AlphaCurve,'sigma',VolCurve);
Create IRTree
Pricer Object
Use finpricer
to create an IRTree
pricer object and use the ratecurve
object for the 'DiscountCurve'
name-value pair argument.
HWTreePricer = finpricer("IRTree",'Model',HWModel,'DiscountCurve',ZeroCurve,'TreeDates',ZeroDates)
HWTreePricer = HWBKTree with properties: Tree: [1x1 struct] TreeDates: [10x1 datetime] Model: [1x1 finmodel.HullWhite] DiscountCurve: [1x1 ratecurve]
Price OptionEmbeddedFixedBond
Instruments
Use price
to compute the price and sensitivities for the three OptionEmbeddedFixedBond
instruments.
[Price, outPR] = price(HWTreePricer,CallableBondBermudan,["all"])
Price = 104.9598
outPR = priceresult with properties: Results: [1x4 table] PricerData: [1x1 struct]
outPR.Results
ans=1×4 table
Price Delta Gamma Vega
______ _______ ______ ____
104.96 -7.3926 19.597 0
[Price, outPR] = price(HWTreePricer,CallableBondAmerican,["all"])
Price = 100
outPR = priceresult with properties: Results: [1x4 table] PricerData: [1x1 struct]
outPR.Results
ans=1×4 table
Price Delta Gamma Vega
_____ _____ _____ ____
100 0 0 0
[Price, outPR] = price(HWTreePricer,CallableBondEuropean,["all"])
Price = 114.5571
outPR = priceresult with properties: Results: [1x4 table] PricerData: [1x1 struct]
outPR.Results
ans=1×4 table
Price Delta Gamma Vega
______ _______ ______ ___________
114.56 -50.006 262.58 -2.8422e-10
Price OptionEmbeddedFloatBond
Instrument Using HullWhite
Model and IRMonteCarlo
Pricer
This example shows the workflow to price an OptionEmbeddedFloatBond
instrument when using a HullWhite
model and an IRMonteCarlo
pricing method.
Create ratecurve
Object
Create a ratecurve
object using ratecurve
.
Settle = datetime(2019,1,1); Type = 'zero'; ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])]'; ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]'; ZeroDates = Settle + ZeroTimes; myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)
myRC = ratecurve with properties: Type: "zero" Compounding: -1 Basis: 0 Dates: [10x1 datetime] Rates: [10x1 double] Settle: 01-Jan-2019 InterpMethod: "linear" ShortExtrapMethod: "next" LongExtrapMethod: "previous"
Create OptionEmbeddedFloatBond
Instrument Object
Use fininstrument
to create an OptionEmbeddedFloatBond
instrument object.
% Option embedded float bond (European callable bond) Maturity = datetime(2022,9,15); Strike = 100; ExerciseDates = datetime(2024,1,1); CallSchedule = timetable(datetime(2020,3,15), 50); Reset = 1; CallableBondEuropean = fininstrument("OptionEmbeddedFloatBond",'Maturity',Maturity,... 'Spread',0.025,'Reset',Reset, ... 'CallSchedule',CallSchedule)
CallableBondEuropean = OptionEmbeddedFloatBond with properties: Spread: 0.0250 ProjectionCurve: [0x0 ratecurve] ResetOffset: 0 Reset: 1 Basis: 0 EndMonthRule: 1 Principal: 100 DaycountAdjustedCashFlow: 0 BusinessDayConvention: "actual" Holidays: NaT IssueDate: NaT FirstCouponDate: NaT LastCouponDate: NaT StartDate: NaT Maturity: 15-Sep-2022 CallDates: 15-Mar-2020 PutDates: [0x1 datetime] CallSchedule: [1x1 timetable] PutSchedule: [0x0 timetable] CallExerciseStyle: "european" PutExerciseStyle: [0x0 string] Name: ""
Create HullWhite
Model Object
Use finmodel
to create a HullWhite
model object.
HullWhiteModel = finmodel("HullWhite",'Alpha',0.32,'Sigma',0.49)
HullWhiteModel = HullWhite with properties: Alpha: 0.3200 Sigma: 0.4900
Create IRMonteCarlo
Pricer Object
Use finpricer
to create an IRMonteCarlo
pricer object and use the ratecurve
object for the 'DiscountCurve'
name-value pair argument.
outPricer = finpricer("IRMonteCarlo",'Model',HullWhiteModel,'DiscountCurve',myRC,'SimulationDates',datetime(2019,3,15)+calmonths(0:6:48)')
outPricer = HWMonteCarlo with properties: NumTrials: 1000 RandomNumbers: [] DiscountCurve: [1x1 ratecurve] SimulationDates: [15-Mar-2019 15-Sep-2019 15-Mar-2020 15-Sep-2020 15-Mar-2021 15-Sep-2021 15-Mar-2022 15-Sep-2022 15-Mar-2023] Model: [1x1 finmodel.HullWhite]
Price OptionEmbeddedFloatBond
Instrument
Use price
to compute the price and sensitivities for the OptionEmbeddedFloatBond
instrument.
[Price,outPR] = price(outPricer,CallableBondEuropean,["all"])
Price = 51.3788
outPR = priceresult with properties: Results: [1x4 table] PricerData: [1x1 struct]
outPR.Results
ans=1×4 table
Price Delta Gamma Vega
______ ______ _______ _______
51.379 61.634 -81.051 -7.0508
Price OptionEmbeddedFloatBond
Instrument Using CoxIngersollRoss
Model and IRTree
Pricer
This example shows the workflow to price a OptionEmbeddedFloatBond
instrument when you use a CoxIngersollRoss
model and an IRTree
pricing method.
Create OptionEmbeddedFloatBond
Instrument Object
Use fininstrument
to create a OptionEmbeddedFloatBond
instrument object.
Maturity = datetime(2027,1,1); Spread = 0.0020; Reset = 1; Strike = 95; ExerciseDates = datetime(2026,1,1); CallSchedule = timetable(ExerciseDates,Strike,VariableNames={'Strike Schedule'}); CallableFloat = fininstrument("OptionEmbeddedFloatBond",Maturity=Maturity,Spread=Spread,Reset=Reset,CallSchedule=CallSchedule,Name="OptionEmbeddedFloatBond_inst")
CallableFloat = OptionEmbeddedFloatBond with properties: Spread: 0.0020 ProjectionCurve: [0x0 ratecurve] ResetOffset: 0 Reset: 1 Basis: 0 EndMonthRule: 1 Principal: 100 DaycountAdjustedCashFlow: 0 BusinessDayConvention: "actual" Holidays: NaT IssueDate: NaT FirstCouponDate: NaT LastCouponDate: NaT StartDate: NaT Maturity: 01-Jan-2027 CallDates: 01-Jan-2026 PutDates: [0x1 datetime] CallSchedule: [1x1 timetable] PutSchedule: [0x0 timetable] CallExerciseStyle: "european" PutExerciseStyle: [0x0 string] Name: "OptionEmbeddedFloatBond_inst"
Create CoxIngersollRoss
Model Object
Use finmodel
to create a CoxIngersollRoss
model object.
alpha = 0.03;
theta = 0.02;
sigma = 0.1;
CIRModel = finmodel("CoxIngersollRoss",Sigma=sigma,Alpha=alpha,Theta=theta)
CIRModel = CoxIngersollRoss with properties: Sigma: 0.1000 Alpha: 0.0300 Theta: 0.0200
Create ratecurve
Object
Create a ratecurve
object using ratecurve
.
Times= [calyears([1 2 3 4 ])]';
Settle = datetime(2023,1,1);
ZRates = [0.035; 0.042147; 0.047345; 0.052707]';
ZDates = Settle + Times;
Compounding = -1;
Basis = 1;
ZeroCurve = ratecurve("zero",Settle,ZDates,ZRates,Compounding = Compounding, Basis = Basis);
Create IRTree
Pricer Object
Use finpricer
to create an IRTree
pricer object for the CoxIngersollRoss
model and use the ratecurve
object for the 'DiscountCurve'
name-value argument.
CIRPricer = finpricer("irtree",Model=CIRModel,DiscountCurve=ZeroCurve,Maturity=ZDates(end),NumPeriods=length(ZDates))
CIRPricer = CIRTree with properties: Tree: [1x1 struct] TreeDates: [4x1 datetime] Model: [1x1 finmodel.CoxIngersollRoss] DiscountCurve: [1x1 ratecurve]
Price OptionEmbeddedFloatBond
Instrument
Use price
to compute the price for the OptionEmbeddedFloatBond
instrument.
[Price,outPR] = price(CIRPricer,CallableFloat,"all")
Price = 96.2125
outPR = priceresult with properties: Results: [1x4 table] PricerData: [1x1 struct]
outPR.Results
ans=1×4 table
Price Delta Gamma Vega
______ ______ _______ __________
96.213 11.933 -36.551 2.8422e-10
Price Multiple OptionEmbeddedFloatBond
Instruments Using HullWhite
Model and IRTree
Pricer
This example shows the workflow to price multiple OptionEmbeddedFloatBond
instruments with Bermudan exercise styles when you use a HullWhite
model and an IRTree
pricing method.
Create ratecurve
Object
Create a ratecurve
object using ratecurve
.
Settle = datetime(2018,1,1); ZeroTimes = calyears(1:10)'; ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]'; ZeroDates = Settle + ZeroTimes; Compounding = 1; ZeroCurve = ratecurve("zero",Settle,ZeroDates,ZeroRates, "Compounding",Compounding);
Create OptionEmbeddedFloatBond
Instrument Objects
Use fininstrument
to create an OptionEmbeddedFloatBond
instrument object for three Option Embedded Float Bond instruments with a Bermudan
exercise style.
Maturity = datetime([2025,1,1 ; 2026,1,1 ; 2027,1,1]); % Option embedded float bond (Bermudan callable bond) Strike = [101 ; 102 ; 103]; ExerciseDates = datetime([2022,1,1 ; 2023,1,1 ; 2024,1,1]); CallSchedule = timetable(ExerciseDates,Strike,'VariableNames',{'Strike Schedule'}); Reset = 1; CallableBondBermudan = fininstrument("OptionEmbeddedFloatBond",'Maturity',Maturity,... 'Spread',[0.001; 0.0015; 0.002],'Reset', Reset, ... 'CallSchedule',CallSchedule,'CallExerciseStyle',"bermudan")
CallableBondBermudan=3×1 OptionEmbeddedFloatBond array with properties:
Spread
ProjectionCurve
ResetOffset
Reset
Basis
EndMonthRule
Principal
DaycountAdjustedCashFlow
BusinessDayConvention
Holidays
IssueDate
FirstCouponDate
LastCouponDate
StartDate
Maturity
CallDates
PutDates
CallSchedule
PutSchedule
CallExerciseStyle
PutExerciseStyle
Name
When you create multiple OptionEmbeddedFloatBond
instruments and use a timetable for CallSchedule
, the timetable specification applies to all of the OptionEmbeddedFloatBond
instruments. The CallSchedule
input argument does not accept an NINST
-by-1
cell array of timetables as input.
Create HullWhite
Model Object
Use finmodel
to create a HullWhite
model object.
VolCurve = 0.01; AlphaCurve = 0.1; HWModel = finmodel("HullWhite",'alpha',AlphaCurve,'sigma',VolCurve);
Create IRTree
Pricer Object
Use finpricer
to create an IRTree
pricer object and use the ratecurve
object for the 'DiscountCurve'
name-value pair argument.
HWTreePricer = finpricer("IRTree",'Model',HWModel,'DiscountCurve',ZeroCurve,'TreeDates',ZeroDates)
HWTreePricer = HWBKTree with properties: Tree: [1x1 struct] TreeDates: [10x1 datetime] Model: [1x1 finmodel.HullWhite] DiscountCurve: [1x1 ratecurve]
Price OptionEmbeddedFixedBond
Instruments
Use price
to compute the prices and sensitivities for the three OptionEmbeddedFixedBond
instruments.
[Price, outPR] = price(HWTreePricer,CallableBondBermudan,"all")
Price = 3×1
100.6713
101.1327
101.6643
outPR=3×1 priceresult array with properties:
Results
PricerData
outPR.Results
ans=1×4 table
Price Delta Gamma Vega
______ _______ _____ ___________
100.67 -2.6133 15.33 -4.2633e-10
ans=1×4 table
Price Delta Gamma Vega
______ _______ ______ ___________
101.13 -4.9053 31.676 -5.6843e-10
ans=1×4 table
Price Delta Gamma Vega
______ _______ ______ _________
101.66 -7.8748 55.171 -0.066246
More About
Floating-Rate Note with Embedded Options
A floating-rate note with an embedded option enables floating-rate notes to have early redemption features.
A floating-rate note with an embedded option gives investors or issuers the option to retire the outstanding principal prior to maturity. An embedded call option gives the right to retire the note prior to the maturity date (callable floater), and an embedded put option gives the right to sell the note back at a specific price (puttable floater).
Callable Floating Note — A callable floating note gives the issuer the right to redeem the note before its maturity date. If interest rates decline or market conditions become favorable for the issuer, they can choose to call or redeem the note, effectively ending the investor's right to receive future interest payments. The call option allows the issuer to refinance the debt at a lower interest rate, reducing their borrowing costs.
Puttable Floating Note — A puttable floating note provides the investor with the right to sell the note back to the issuer before its maturity date. This option allows the investor to demand early repayment of the principal if certain conditions are met, such as if interest rates rise significantly. The put option provides the investor with some flexibility and protection in case market conditions become unfavorable.
For more information, see Floating-Rate Note with Embedded Options.
Tips
After creating an OptionEmbeddedFixedBond
object, you can modify
the CallSchedule
and CallExerciseStyle
using
setCallExercisePolicy
. Or, you can modify the
PutSchedule
and PutExerciseStyle
values
using setPutExercisePolicy
.
Version History
Introduced in R2020aR2023b: Support for Pricing OptionEmbeddedFloatBond
Instruments Using CoxIngersollRoss
Model and IRTree
Pricer
You can price OptionEmbeddedFloatBond
instruments using a
CoxIngersollRoss
model object
and an IRTree
pricing
method.
R2022b: Serial date numbers not recommended
Although OptionEmbeddedFloatBond
supports serial date numbers,
datetime
values are recommended instead. The
datetime
data type provides flexible date and time
formats, storage out to nanosecond precision, and properties to account for time
zones and daylight saving time.
To convert serial date numbers or text to datetime
values, use the datetime
function. For example:
t = datetime(738427.656845093,"ConvertFrom","datenum"); y = year(t)
y = 2021
There are no plans to remove support for serial date number inputs.
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