Using Matrix Functions For Finance

Source:http://www.mathworks.com/access/helpdesk/help/toolbox/finance/f2-1001993.html

Many financial analysis operations involve sets of numbers; Matrices, matrix functions, and matrix algebra are the most efficient ways to analyze sets of numbers and their relationships. Spreadsheets focus on individual cells and the relationships between cells. A matrix-oriented tool like MATLAB software manipulates sets of numbers more quickly, easily, and naturally.

For example, here is a 2-by-3 matrix of two bonds (the rows) with different par values, coupon rates, and coupon payment frequencies per year (the columns) entered using MATLAB notation:

Bonds =

[1000 0.06 2
500 0.055 4]

Vector. A matrix with only one row or column. The description is always "row-by-column." For example, here is a 1-by-4 vector of cash flows in MATLAB notation:
Cash = [1500 4470 5280 -1299]

Referencing Matrix Elements
To reference specific matrix elements, use (row, column) notation. For example:

Bonds(1,2)
ans =
0.06

Cash(3)
ans =
5280.00

We can also enlarge matrices using small matrices or vectors . For example,

AddBond = [1000 0.065 2];
Bonds = [Bonds; AddBond]

addsanother row to the matrix and creates

Bonds =

1000 0.06 2
500 0.055 4
1000 0.065 2

Transposing Matrices
In MATLAB, the apostrophe or prime character (') transposes a matrix: columns become rows, rows become columns. For example,

Cash = [1500 4470 5280 -1299]'
produces
Cash =

1500
4470
5280
-1299

Using Matrices Functions for Finance

Many financial analysis procedures involve sets of numbers;.Matrices, matrix functions, and matrix algebra are the most efficient ways to analyze sets of numbers and their relationships. A matrix-oriented tool like MATLAB software manipulates sets of numbers more quickly, easily, and naturally.
For example, here is a 2-by-3 matrix of two bonds (the rows) with different par values, coupon rates, and coupon payment frequencies per year (the columns) entered using MATLAB notation:

Bonds = [ 1000    0.06  2

                     500  0.055  4 ]


Cash = [ 1500  4470  5280  -1299 ]


Referencing Matrix Elements

To reference specific matrix elements, use (row, column) notation. For example:

Bonds(1,2)

ans =

0.06

Cash(3)

ans =

5280.00

You can enlarge matrices using small matrices or vectors as elements. For example,

AddBond = [ 1000   0.065   2 ];
Bonds = [ Bonds;  AddBond ]

Adds another row to the matrix and creates

Bonds =


1000     0.06  2
  500   0.055  4
1000   0.065  2



Transposing Matrices

Sometimes matrices are in the wrong configuration for an operation. In MATLAB, the apostrophe or prime character (') transposes a matrix: columns become rows, rows become columns. For example,

Cash = [ 1500 4470 5280 -1299 ]'

produces

Cash =

  1500
 4470
 5280
-1299

It's interesting to see matrices being used in this line of work.
More information can be found at this site

Richard Khoury