CFEVALDEMO1
Function cfeval calculates cash flows of fixed-income portfolios and structured products, given a quasi-symbolic, Matlab-syntax, typically recursive description of principal and coupon dynamics. Combined, these descriptions are passed to cfsim in cell arrays of strings, whose rows correspond to securities, and columns to periods.
Contents
help cfeval
CFEVAL Evaluate portfolio cash flows given their symbolic definitions
INPUTS : N*T cell arrays of strings, where cell (i,t) contains definition
of .. on security i in period t:
pofun - principal outstanding
cpfun - coupon payment
psfun - scheduled principal repayment
ppfun - unscheduled principal repayment
par - parameter structure, available to calculations defined
in pofun, cpfun, psfun, ppfun
OUTPUTS : N*T arrays, where element (i,t) contains value of .. on security
i in period t:
cfval - total cash flow (sum of cfval, psval and ppval)
poval - principal outstanding
cpval - coupon payment
psval - scheduled principal repayment
ppval - unscheduled principal repayment
NOTES : Cells of input arrays are evaluated sequentially, iterating over
* periods: t = 1,..,T
* securities: i = 1,..,N
* input arrays: pofun, cpfun, psfun, ppfun
Computing xval(i,t) - note that xfun arrays definitions must use
indexes i and t - one can reference already-evaluated quantities
EXAMPLE : See CFEVALDEMO
AUTHOR : Dimitri Shvorob, dimitri.shvorob@vanderbilt.edu, 9/25/07
Example 1. Fixed-coupon bond
a) set up security definitions
T = 3; [pofun,cpfun,psfun,ppfun] = deal(cell(1,T));
- Principal outstanding: constant, normalized to 1
[pofun{:}] = deal('1');
- Coupon: 5%
[cpfun{:}] = deal('0.05*poval(i,t)');
- Principal repayment: outstanding principal at maturity
[psfun{:}] = deal('0'); psfun{T} = 'poval(i,t)';
[ppfun{:}] = deal('0');
b) calculate total cash flows
cfeval(pofun,cpfun,psfun,ppfun)
ans =
0.05 0.05 1.05
Example 2. Floating-rate note
a) set up security definitions
[pofun,cpfun,psfun,ppfun] = deal(cell(1,T));
- Principal outstanding: constant, normalized to 1
[pofun{:}] = deal('1');
- Coupon: linked to a variable rate, its path passed to cfeval in parameter structure par
clear par
par.libor = 0.1*rand(1,T) %#ok
par =
libor: [0.04 0.06 0.08]
[cpfun{:}] = deal('par.libor(t)*poval(i,t)');
- Principal repayment: outstanding principal at maturity
[psfun{:}] = deal('0'); psfun{T} = 'poval(i,t)';
[ppfun{:}] = deal('0');
b) calculate coupon payments and total cash flows
[cfval,poval,cpval] = cfeval(pofun,cpfun,psfun,ppfun,par); %#ok
cpval, cfval %#ok
cpval =
0.04 0.06 0.08
cfval =
0.04 0.06 1.08
Example 3. Floater and inverse floater
a) set up security definitions
[pofun,cpfun,psfun,ppfun] = deal(cell(2,T));
- Principal outstanding: constant, normalized to 1, split 50/50 between floater and inverse floater
par.w = [.5 .5];
[pofun{:}] = deal('par.w(i)');
- Coupon: (LIBOR + 2%) for floater, max(5%-LIBOR,0) for inverse floater
[cpfun{1,:}] = deal('(par.libor(t) + 0.02)*poval(i,t)');
[cpfun{2,:}] = deal('max(0.05 - par.libor(t),0)*poval(i,t)');
- Principal repayment: outstanding principal at maturity
[psfun{:}] = deal('0'); [psfun{:,T}] = deal('poval(i,t)');
[ppfun{:}] = deal('0');
b) calculate coupon payments and total cash flows
[cfval,poval,cpval] = cfeval(pofun,cpfun,psfun,ppfun,par); %#ok
cpval, cfval %#ok
cpval =
0.03 0.04 0.05
0.00 0 0
cfval =
0.03 0.04 0.55
0.00 0 0.50
Example 4. CDO with senior and subordinate tranches
a) set up security definitions
[pofun,cpfun,psfun,ppfun] = deal(cell(2,T));
- Principal: normalized to 1, split 75/25 between senior and subordinate tranches, and subsequently reduced by collateral defaults, occuring at random rate d(t), so that fraction 1-d(t) of principal outstanding in period t remains at t+1
clear par
par.w = [.75 .25];
par.d = .1*ones(1,T);
[pofun{:,1}] = deal('par.w(i)');
Credit loss on overall portfolio:
clp = 'par.d(t-1)*sum(poval(:,t-1),1)' %#ok
clp = par.d(t-1)*sum(poval(:,t-1),1)
Credit loss on senior tranche:
cls = ['max(0,' clp ' - poval(2,t-1))'] %#ok
cls = max(0,par.d(t-1)*sum(poval(:,t-1),1) - poval(2,t-1))
Subordinate tranche: principal reduced by credit losses, but cannot go negative
[pofun{2,2:end}] = deal(['max(0,poval(2,t-1) - ' clp ')']);
Senior tranche: principal reduced only if credit losses exceed subordinate tranche's principal
[pofun{1,2:end}] = deal(['max(0,poval(1,t-1) - ' cls ')']);
- Coupon: 5% on senior tranche, 10% on subordinate tranche
par.r = [.05 .10];
[cpfun{:}] = deal('par.r(i)*poval(i,t)');
- Principal repayment: outstanding principal at maturity
[psfun{:}] = deal('0'); [psfun{:,T}] = deal('poval(i,t)');
[ppfun{:}] = deal('0');
b) calculate principal outstanding, coupon payments, and overall cash flows
[cfval,poval,cpval] = cfeval(pofun,cpfun,psfun,ppfun,par); %#ok
poval, cpval, cfval %#ok
poval =
0.75 0.75 0.75
0.25 0.15 0.06
cpval =
0.04 0.04 0.04
0.03 0.01 0.01
cfval =
0.04 0.04 0.79
0.03 0.01 0.07
