Outline of Course

MATLAB Basics
Matrices and Matrix Operations

Application of Matlab for Finance

Week 1

Shi, Yining

September 6, 2016

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course
MATLAB Basics
Matrices and Matrix Operations

Today’s Class

I Outline of the Course

I Matlab Basics
I Matrices and Matrix Operation
I Indexing and Colon Operator
I Examples

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course
MATLAB Basics
Matrices and Matrix Operations

What is Matlab?

I A scientific programming Language: MATrix LABoratory

I A very fancy calculator
I A tool for econometrics and finance
I A tool for numerical methods, probability, and statistics
I A tool to produce graphics and plots

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course
MATLAB Basics
Matrices and Matrix Operations

Outline of Course

I Lecture 1 - Variables, Matrices, Indexing, and Operations.

I Lecture 2 - Flow Control, Logical Operators, User defined functions, I/O
I Lecture 3 & 4 - Portfolio Optimization, Trading Strategy, Graphics with
MATLAB
I Lecture 5 - Simulation and Option Pricing
I Lecture 6 - Regression Analysis
I Lecture 7 - Revision and In-class test

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course
MATLAB Basics
Matrices and Matrix Operations

Teaching materials

I Course materials are available on the HUB and consist of

I Lecture slides
I Example question solutions in m-file format
I Each class consists of interactive sessions: a mix of the course leader
demonstrating and the class students implementing example code.
I Examination:
I Coursework/Assignment (50%)
I Individual Coursework / In class test in Lecture 7 (Week 8) (50%)

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course
MATLAB Basics
Matrices and Matrix Operations

Administrative Details

I Class Materials
I Create a directory H://MATLAB_Course in your H: drive
I Hub Website: https://www.imperialbusiness.school
I Download the MATLAB file from the HUB.
I Save the file to H://MATLAB_Course//Class 1 (Class 2 etc )
I We will populate this directory in the following weeks.

Shi, Yining Application of Matlab for Finance Week 1

 MATLAB Layout
Outline of Course
Help File
MATLAB Basics
Command Prompt
Matrices and Matrix Operations
Variables

MATLAB Layout

I Command Window
I Type commands and display no-graphic output
I A >> prompt shows the system is ready for input
I Current Directory (CD)
I The directory (folder) that MATLAB is currently working in
I Always change the CD to where your MATLAB files are located
I cd('H:/MATLAB_Course/Class 1') for today
I Editor
I The window where you edit and save m-files
I m-files: the files that save scripts and functions that you’ve
defined/created
I Workspace:
I Store all the variables that you currently created and defined

Shi, Yining Application of Matlab for Finance Week 1

 MATLAB Layout
Outline of Course
Help File
MATLAB Basics
Command Prompt
Matrices and Matrix Operations
Variables

Help File

I Search Field: right up corner: "Search Documentation"

I Type a keyword (e.g. skewness)
I Definition, function usage instructions etc.
I Command window: help followed by the name of the function
I help skewness: on-screen text with usage instructions
I In script help: highlight the function name and press F1

Shi, Yining Application of Matlab for Finance Week 1

 MATLAB Layout
Outline of Course
Help File
MATLAB Basics
Command Prompt
Matrices and Matrix Operations
Variables

Command Prompt

I Open Hello_World.m
I % Name: Hello_World.m: % comments identifier
I %%: split m-file into subsections
I End a command with a semi-colon (;) to suppress the output
I Semi-colon (;) helps separate multiple commands that in one line
I Execute your commands
I Type (paste) commands in the command window → enter
I Define a 100 by 1 vector of ones
I Type ones(100,1) vs ones(100,1);
I Execution by selection: F9
I Execution by blocks: F5

Shi, Yining Application of Matlab for Finance Week 1

 MATLAB Layout
Outline of Course
Help File
MATLAB Basics
Command Prompt
Matrices and Matrix Operations
Variables

Variables

I A variable stores the assigned value in memory so that your programs can read
it, operate on it and save it back to memory.
I Variable names:

I it must begin with a letter

I uppercase and lowercase are distinguished A 6= a
I ensure the name is not already used as a function name.
I All MATLAB variables are stored and used as matrices.

I Elements: numbers, characters, logical statements (1 or 0), etc.

I Scalar (1-by-1): A = 3  
1
I Vector (1-by-n) or (n-by-1): B = [1 2] C =
2
 
1 2
I Matrix (2-by-2) D =
3 4

Shi, Yining Application of Matlab for Finance Week 1

 MATLAB Layout
Outline of Course
Help File
MATLAB Basics
Command Prompt
Matrices and Matrix Operations
Variables

Create Variables

   
1 1 2
I Create A = 3 B = [1 2] C = D= E = [0 0 0]
2 3 4
I A = 3
I []: Used to create matrix, not used to clarify order of operations.
I Row vector with two elements, separate the elements with either a comma (,) or
a space
B = [1,2] %or B = [1 2]
I A matrix has multiple rows, separate the rows with semicolons (;)
C = [1;2]
D = [1,2;3,4] %or D = [1 2; 3 4]
I Functions:
ones, zeros, rand, eyes
E = zeros(1,3)

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Matrix Indexing and the Colon Operator

I To reference a particular element in a matrix, specify its row and column number
I Always specify the row first and column second: A(row, column);
I A(2,3) refers to the 2nd row, 3rd column element.
I Colon (:) selects the complete rows or columns:; e.g. A(2, :) refers to the 2nd
row, whereas A(:, 3) refers to the 3rd column of matrix A.
I Colon (:) also selects a particular range of values in a matrix; e.g. A(2,1:3)
selects the first, second and third elements of the 2nd row.
I A(1 : 2, 3 : 4) selects the 2-by-2 sub-matrix of A that is comprised of the first 2
rows for the 3rd and 4th columns of A.
I a step size can also be used; e.g. A(1, 1 : 2 : 5) will select the first rows 1st, 3rd
and 5th elements

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Matrix Indexing and the Colon Operator

" #
1 2 3 4 5
I A=
6 7 8 9 10
I Find A(2, 3), A(2, 1 : 3), A(1 : 2, 3 : 4) and A(1, 1 : 2 : 5)

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Matrix Indexing and the Colon Operator

" #
1 2 3 4 5
A=
6 7 8 9 10

I A(2, 3) = 8
I A(2, 1 : 3) = 6, 7, 8
" #
3 4
I A(1 : 2, 3 : 4) =
8 9
I A(1, 1 : 2 : 5) = [1, 3, 5]

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Matrix Indexing and Colon Operator: Define

Variables

I Define X = [1 2] with matrix indexing and then redefine X = [1 15]

X(1,1)= 1
X(1,2)= 2
X(1,2)=15 %change the value to X(1,2)
" #
1 2 3 4 5
I Define Y =
0 0 0 0 0
Y(1,:)= 1:1:5
Y(2,:)= 0
% Way 2: use functions
Y1 = 1:1:5
Y2 = zeros(1,5)
Y = [Y1;Y2]
% Way 3
Y = [1:1:5;zeros(1,5)]

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Simple Matrix Operations

I Matrix arithmetic operations are defined by the rules of linear algebra
I Matrix multiplication A∗ B needs equality of Columns of A and Rows of B.

A+B Addition

A−B Subtraction

A∗B Multiplication

A/B Division (scalars)

Ab Power (to a scalar)

A0 Transpose

() evaluation order

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

element-by-element operations

I MATLAB supports element-by-element arithmetic operations between matrices.

I The period character (.) distinguishes these operations from the linear algebra
matrix operations.
I Element-by-element operations can only be carried out between matrices of
equal sizes.
I Since the two classes of operations (linear algebra and element-by-element) are
the same for addition and subtraction, the character pairs .+ and .- are not used.

A.∗ B Element-by-element Multiplication

A./B Element-by-element Division

A.B Element-by-element Power

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations


4  
−3 2 3
a = [1 2 3 4] b= 
 2  c=
1 4
4

I a ∗ b = 1 ∗ 4 + 2 ∗ (−3) + 3 ∗ 2 + 4 ∗ 4 = 20
(1 × 4) (4 × 1) (1 × 1)

I b 0 = [4 − 3 2 4] and a ∗ b 0 give error message

I a. ∗ b 0 = [1 2 3 4].∗[4 −3 2 4] = [1∗4, 2∗−3, 3∗2, 4∗4] = [4, −6, −6, 16]

 
7 18
I c2 =
6 19

 2
32
  
2 4 9
I c.2 = =
12 42 1 16

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Exercises 
4  
−3 2 3
I (1) Create a = [1 2 3 4] b=  c= .
 2  1 4
4
I (2) Calculate and create

I X1 = a ∗ b
I X2 = b ∗ a
I X3 = X 1 ∗ X 2
I X4 = a/2
I Extend Matrix X3 with a 5th column whose value is b, and call the
new Matrix M (eg. M = [X3,b])
I Try a ∗ b 0 (What the message says, why?)
I (3) perform element by element calculation a. ∗ b 0 , a0 . ∗ b, a0 ./b and c.2

I (4) Using the colon operator, create a 1-by-25 raw vector with:

I elements containing the integers 1 to 25.

I the first element 0 and the last element 12, with a step size of 0.5.
I (5) Use the Help Field to find out what the commands clear a,
clear all and clc do.
Shi, Yining Application of Matlab for Finance Week 1
 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Predefined Functions

I MATLAB provides a large number of standard elementary mathematical

functions, including abs(.), sqrt(.), exp(.), and sin(.), cos(.),
which require inputs.
I Special functions that do not need an argument include pi, which returns the
√
number 3.1415 and i which returns the imaginary unit, −1
I Basic graphic function plot(.) is used to visualize the evolution of the vector
A. Also use area(.) to have a different type of graph.
I The best way to find a particular function along with its usage instructions is via
the MATLAB help file.

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Exercises 2
I (6) Using the functions zeros(.), ones(.) and eye(.) to create
I a 4-by-4 matrix A full of zeros
I a 3-by-4 matrix B full of ones
I a 5-by-5 identity matrix I
I a 4-by-4 matrix C full of fives
I

1 5 5 5
 
5 1 5 5
V =
 

5 5 1 5
5 5 5 1
I (7) Find the size and length of matrix B above

I size(.) to return the dimension size of a matrix (row number, col

number)
I length(.) returns the maximum dimension of a matrix.

Shi, Yining Application of Matlab for Finance Week 1

 Outline of Course Indexing and Colon Operator
MATLAB Basics Simple Matrix Operations
Matrices and Matrix Operations Element-by-Element operations

Examples

I (8) Find the value of sin(pi/2), cos(pi), exp(2), abs(-5)and

sqrt(122)
" #
1 3 5 4 7 3
I (9) Create a vector A with values and find
1 4 3 2 1 9
I mean(A), mean(A,2)
I sum(A), sum(A,2), cumsum(A(1,:))
I prod(A(1,:)), cumprod(A(1,:))
I (10) Create B equals to the second row of A, and make graphs

I line plot plot(.)

I area figure area(.)
I bar figure bar(.)

Shi, Yining Application of Matlab for Finance Week 1