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SinoPac Securities Builds Structured Products Using MATLAB

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Using MATLAB and companion toolboxes to integrate with Excel, measure risks, and price derivative instruments.

"MATLAB enabled us to use matrix arithmetic rather than reiterative calculations, saving hours of development time and providing us with an unprecedented degree of accuracy."

Miss Lin, SinoPac Securities

To meet the varied financial needs of its more than one million clients in the domestic market, SinoPac Securities has developed a range of derivative products, including equity linked notes (ELNs). These structured products combine a fixed-income security with an option, providing domestic investors with favorable interest rates and potential equity upside with limited loss.

SinoPac dramatically reduced computation time by designing, planning, and pricing their ELNs using the computational environment and modeling functions of MATLAB and the Financial Toolbox.

"After using MATLAB, the speed and accuracy of our calculation work improved immensely," says Miss Lin, SinoPac Securities derivatives department manager. "Compared to our original system, MATLAB speeded up our calculation process by at least a factor of ten."

Challenge

To prepare the product contract, which includes the price, annual interest rate, and maximum potential profit, SinoPac Securities simulates a wide range of dynamic trends and calculates all possible price options. Because the ELNs are linked to eight listed stocks, modeling the ELNs is a complex process.

The greatest difficulty involved increasing computation speed and rapidly establishing delta, gamma, and other quantitative measures to provide customer quotes and evaluate product risk. Initially, SinoPac developed their models in Visual Basic and C. However, they discovered that most of the team’s time was dedicated to writing programs, and the output values from these applications were frequently unreliable.

SinoPac needed a financial modeling and analysis environment to process high-speed, high-volume calculations of more than 100,000 simulations to produce accurate results. Finally, the work needed to be completed within a deadline of just two weeks.

Solution

Within just one week, SinoPac used MATLAB and the Financial Toolbox to build a valuation model and launch the SinoPac ELNs. MATLAB enabled them to balance risk and return by simulating dynamic trends with matrix arithmetic rather than reiterative calculations, saving time and providing an unprecedented degree of accuracy.

The time required to construct models has also been considerably reduced. Originally, it took four steps to obtain the minimum return. With MATLAB, SinoPac performed the same task using simple commands, and obtained results directly.

SinoPac Securities plans to continue using MathWorks tools for their financial modeling and analysis projects.

Results

  • Increase in computation speed by a factor of ten. Compared with Visual Basic and C, MATLAB reduced data processing time by a factor of ten. Previously, it took SinoPac more than two minutes to calculate results using its original software system. The same calculation now takes less than a second using MATLAB.
  • Highly accurate, reliable calculations. Whether using Monte Carlo simulations or closed-form solutions, results produced with MathWorks tools are always reliable.
  • Rapid construction of the optimum model. Using other languages, SinoPac needed several weeks to develop a pricing strategy. With MathWorks tools, they completed these calculations in a few days. MATLAB has reduced modeling time by at least a factor of seven.

Challenge

To balance the risk value and the rate of return on investment and to prepare the product contract quickly

Solution

Use MathWorks tools to build an equity linked note model that processes high-speed, high-volume calculations and produces accurate simulation results

Results

  • Increase in computation speed by a factor of ten
  • Highly accurate, reliable calculations
  • Rapid construction of the optimum model

Products Used

Learn more about SinoPac Securities