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1© 2012 The MathWorks, Inc.
Computational Finance with MATLAB
MathWorks Computational Finance Team
2
Challenges in Financial Analysis
Volatile markets
– Ever-changing needs
Lack of computing power
– Large data, large models
Increased transparency
– More auditing and regulation
– More sharing with colleagues
ManagementTraders
Quant Group
Financial
Engineer
Regulators Clients Partners
Other groups
3
Who uses MATLAB in Financial Services?
The top 15 asset-
management companies
The top 10 U.S. commercial
banks
11 of the top 15 hedge funds
The reserve banks of all
OECD member countries
The top 3 credit rating
agencies
4
MATLAB Application Areas in Finance
Investment Management
Risk Analysis
Insurance
Economics/Econometrics
Trading
Pricing & Valuation
More details & user stories at mathworks.com/financial-services
5
Credit Risk Analysis
Assess the Credit Value-at-
Risk of a bond portfolio
– 1311 different obligors
– 12 different industries
– Maturities in 1 to 4 years
Compute credit ratings
Model credit transitions
Simulate credit events &
analyze portfolio losses
93.68%
2.44%
0.14%
0.03%
0.03%
0.00%
0.00%
0.00%
5.55%
92.60%
4.18%
0.23%
0.12%
0.00%
0.00%
0.00%
0.59%
4.03%
91.02%
7.49%
0.73%
0.11%
0.00%
0.00%
0.18%
0.73%
3.90%
87.86%
8.27%
0.82%
0.37%
0.00%
0.00%
0.15%
0.60%
3.78%
86.74%
9.64%
1.84%
0.00%
0.00%
0.00%
0.08%
0.39%
3.28%
85.37%
6.24%
0.00%
0.00%
0.00%
0.00%
0.06%
0.18%
2.41%
81.88%
0.00%
0.00%
0.06%
0.08%
0.16%
0.64%
1.64%
9.67%
100.00%
AAA AA A BBB BB B CCC D
AAA
AA
A
BBB
BB
B
CCC
D
6
Traditional Approach Challenge
Challenges Faced During Model Development
Off-the-shelf software Inability to customize
Third-party consulting Lack of transparency
Spreadsheets, ExcelSubpar computational
speed, limited data size
In-house development with
traditional languagesLong development time
Combination of the aboveInefficiencies in
Integration & Automation
7
Computational Finance Workflow
Research and Quantify
Data Analysis
& Visualization
Financial
Modeling
Application
Development
Reporting
Applications
Production
Share
Automate
Files
Databases
Datafeeds
Access
8
Excel spreadsheets and flat files
ODBC or JDBC compliant databases
Data feeds including Bloomberg, Reuters, Factset®, eSignal® and others
Web services (SOAP)
Connect to Data from Various Sources
9
Mathematics Regression (Linear, Non-Linear)
Curve Fitting
Probability Distributions, RNG
Clustering
Multivariate & Factor Analysis
Predictive Modeling, AI
Optimization, Parameter Estimation
Leverage Built-in Functions to Save Time
Financial Modeling Portfolio Optimization & Analysis
Derivative Pricing & Hedging
Yield Curve Modeling
Monte Carlo Simulation
Risk Quantification
ARMA/GARCH Analysis
10
CalPERS Analyzes Currency
Market Dynamics to Identify
Intraday Trading Opportunities
ChallengeDevelop an intraday trading model for currency
markets
SolutionUse MATLAB and companion toolboxes to quantify
market dynamics by analyzing millions of rows of
historical market data
Results Development time reduced by months
Profitable market dynamic identified
Market insight gained
“My expertise is in finance, not
programming. To perform sophisticated
analysis on vast amounts of data, I
needed software that was easy to use
and included many of the functions I
needed. With MATLAB I can do
everything in one environment, and that
is a real benefit.”
Omid Rezania
CalPERS
CalPERS intraday currency volatility analysis.
Link to user story
11
Traditional Approach Challenge
Off-the-shelf software Inability to customize
Third-party consulting Lack of transparency
Spreadsheets, ExcelSubpar computational
speed, limited data size
In-house development with
traditional languagesLong development time
Combination of the aboveInefficiencies in
Integration & Automation
Challenges Faced During Model Development
12
Traditional Approach Challenge
Off-the-shelf software Inability to customize
Third-party consulting Lack of transparency
Spreadsheets, ExcelSubpar computational
speed, limited data size
In-house development with
traditional languagesLong development time
Combination of the aboveInefficiencies in
Integration & Automation
Challenges Faced During Model Development
13
Challenge Solution
Inability to customizeFlexible modeling
Complete development environment
Lack of transparencyWhite-box modeling
Viewable-source functions
Subpar computational
speedsPowerful computation engine
Run fast Monte-Carlo simulations
Long development timeQuick prototyping
Focus on modeling not programming
Inefficiencies in
IntegrationEasy to Integrate & Deploy
Point-and-click workflow
MATLAB Solutions
14
Finance Application Examples
Economic Modeling &
Forecasting
Cash-flow Hedging &
Scenario Analysis
Credit Value-at-Risk
More focused webinars available at mathworks.com/recordedwebinars
15
Computational Finance Workflow
Financial
Statistics Optimization
Fixed Income Financial Derivatives Econometrics
MATLAB
Parallel Computing MATLAB Distributed Computing Server
Files
Databases
Datafeeds
Access
Reporting
Applications
Production
Share
Data Analysis and Visualization
Financial Modeling
Application Development
Research and Quantify
Datafeed
Database
Spreadsheet Link EX
Builder NE
Builder EX
Builder JA
MATLAB Compiler
Re
po
rt Ge
ne
rato
r
16
Support and Community
17
Training
Three ways to get training
– Public training
Offered throughout the world
Schedule and course information at www.mathworks.in/training
– Onsite training
Bring training to your site, with course customization available
– Web-based training
Instructor-led e-learning
Train at work or at home, with flexible dates and times
Example course topics
– Introductory and intermediate training on MATLAB, Simulink, Stateflow,
and Real-Time Workshop
– Specialized courses in control design, signal processing, parallel computing,
code generation, communications, financial analysis, and other areas
www.mathworks.in/training
18
Technical Support
Resources
Over 100 support engineers
– All with MS degrees (EE, ME, CS)
– Local support in North America,
Europe, and Asia
Comprehensive, product-specific Web
support resources
High customer satisfaction
95% of calls answered
within three minutes
70% of issues resolved
within 24 hours
80% of customers surveyed
rate satisfaction at 80-100%
www.mathworks.in/support
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