List of Figures xi
Preface and Disclaimer xiii
Acknowledgements xvii
1 Introduction 1
1.1 Strategic asset allocation 1
1.2 Outline of the book 5
2 Essential Elements of MATLAB 7
2.1 Introduction 7
2.2 Getting started 8
2.3 Introductory matrix algebra 12
2.4 Organising data 16
2.5 Creating functions 18
2.6 Linear regression 23
2.7 Some estimation examples 27
2.8 A brief introduction to simulations 32
3 Fixed-Income Preliminaries 39
3.1 Introduction 39
3.2 Spot rates and yields 39
3.3 Forward rates 47
3.4 Bond pricing functions 48
4 Risk and Return Measures 51
4.1 Introduction 51
4.2 Risk measures 51
4.3 Fixed-income returns 65

5 Term Structure Models 69
5.1 Introduction 69
5.2 Not necessarily arbitrage-free models 69
5.3 Arbitrage-free models 74
6 Asset Allocation 87
6.1 Introduction 87
6.2 Efficient portfolios 87
6.3 Diversification 95
6.4 The minimum variance portfolio 98
6.5 Asset weight constraints 100
6.6 The Capital Asset Pricing Model 106
7 Statistical Tools 109
7.1 Introduction 109
7.2 Vector autoregression 109
7.3 Regime-switching models 112
7.4 Yield curve models in state-space form 123
7.5 Importance sampling 129
8 Building Graphical User Interfaces 135
8.1 Introduction 135
8.2 The ‘guide’ development environment 135
8.3 Creating a simple GUI 138
9 Useful Formulae and Expressions 149
9.1 Introduction 149
9.2 Matrix operations 149
9.3 Decompositions 153
9.4 Basic rules 154
9.5 Distributions 156
9.6 Functions 157
9.7 Taylor series approximation 159
9.8 Interest rates, returns and portfolio statistics 159
Bibliography 161
Index 163