price

Compute price for credit derivative instrument with Credit pricer

Syntax

[Price,PriceResult] = price(inpPricer,inpInstrument)

Description

[Price,PriceResult] = price(inpPricer,inpInstrument) computes the instrument price and related pricing information based on the pricing object inpPricer and the instrument object inpInstrument.

Examples

Use Credit Pricer and Default Probability Curve to Price CDS Instrument

This example shows the workflow to price a CDS instrument when you use a defprobcurve model and a Credit pricing method.

Create CDS Instrument Object

Use fininstrument to create a CDS instrument object.

CDS = fininstrument("cds",'Maturity',datetime(2027,9,20),'ContractSpread', 50,'Name',"CDS_instrument")

CDS = 
  CDS with properties:

           ContractSpread: 50
                 Maturity: 20-Sep-2027
                   Period: 4
                    Basis: 2
             RecoveryRate: 0.4000
    BusinessDayConvention: "actual"
                 Holidays: NaT
        PayAccruedPremium: 1
                 Notional: 10000000
                     Name: "CDS_instrument"

Create defprobcurve Object

Create a defprobcurve object using defprobcurve.

Settle = datetime(2017, 9, 20);
DefProbTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])];
DefaultProbabilities = [0.005 0.007 0.01 0.015 0.026 0.04 0.077 0.093 0.15 0.20]';
ProbDates = Settle + DefProbTimes;
DefaultProbCurve = defprobcurve(Settle,ProbDates,DefaultProbabilities)

DefaultProbCurve = 
  defprobcurve with properties:

                  Settle: 20-Sep-2017
                   Basis: 2
                   Dates: [10x1 datetime]
    DefaultProbabilities: [10x1 double]

Create ratecurve Object

Create a ratecurve object using ratecurve.

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;
ZeroCurve = ratecurve("zero",Settle,ZeroDates,ZeroRates)

ZeroCurve = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [10x1 datetime]
                Rates: [10x1 double]
               Settle: 20-Sep-2017
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create Credit Pricer Object

Use finpricer to create a Credit pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

CDSpricer = finpricer("credit",'DiscountCurve',ZeroCurve,'DefaultProbabilityCurve',DefaultProbCurve)

CDSpricer = 
  Credit with properties:

              DiscountCurve: [1x1 ratecurve]
                   TimeStep: 10
    DefaultProbabilityCurve: [1x1 defprobcurve]

Price CDS Instrument

Use price to compute the price for the CDS instrument.

outPrice = price(CDSpricer, CDS)

outPrice = 6.9363e+04

Input Arguments

inpPricer — Pricer object

Credit pricer object

Pricer object, specified as a scalar Credit pricer object. Use finpricer to create the Credit pricer object.

Data Types: object

inpInstrument — Instrument object

CDS object

Instrument object, specified as a scalar CDS instrument object. Use fininstrument to create the CDS instrument object.

Data Types: object

Output Arguments

Price — Instrument price

numeric

Instrument price, returned as a numeric.

PriceResult — Price result

PriceResult object

Price result, returned as a PriceResult object. The object has the following fields:

• PriceResult.Results — Table of results that includes the CDS price and accrued premium

• PriceResult.PricerData — Structure that includes the premium leg payment dates, times, and cash flows