How to graph call and put options in excel

How to graph call and put options in excel

Author: mazpek Date: 01.06.2017

Payoff Diagram Spreadsheet Download

Most of the functions can be used directly from a worksheet cell, or called from a VBA module. The pricing, implied volatility, and analysis functions include:. Functions for the valuation of the most common types of "exotic" options.

Both European and American exercise styles are handled for each type of option:.

Put Option Payoff Diagram and Formula - Macroption

Standard option pricing models cannot be used to determine the value of employee stock options. Vesting requirements, forfeiture of unvested and OTM options when employees leave the company, non-tradability of ESOs, and other considerations make ESO valuation more complex than standard option valuation. The add-in contains a number of functions designed specifically for IFRS 2 and FASB R-compliant ESO valuation, and to value Market-Leveraged Stock Units MSUs.

See ESO functions for more details. Functions for analyzing volatility, correlation, price distributions, testing for cointegration etc. For more information see the FAQ on volatilityand the historical volatility calculator. Also view the historical volatility demo and the GARCH demo. Functions to help quantify the likelihood of trading success or failure and to help manage risk:.

All probabilities apart from Monte Carlo simulation are calculated analytically or by trinomial tree so their fast calculation times make them suitable for applications which need to calculate and manipulate a large number of probabilities eg a probability matrix by spot and strike prices. Functions for hedging, portfolio insurance, risk control, and for calculating trade profitability:.

Two functions for the pricing and valuation of forward and futures contracts. Both functions handle futures on investment assets paying income as discrete payments like individual dividend-paying stocks or coupon bonds or paying income expressed as an annual yield like stock indices and foreign currencies:.

HoadleyVarianceSwap1 calculates the fair variance and hedging portfolio weights for a variance swap. HoadleyVarianceSwap2 will calculate the value of a variance swap some time after inception taking into account realized volatility to date and forecast implied volatility. Copulas provide a powerful and flexible model for simulating financial returns for multiple assets where individual asset return distributions are specified independently of the dependen ce structure which exist between the assets.

A key feature of copulas is that they obviate the need to assume normally distributed returns and a relationship between assets based on simple linear correlation. The Finance Add-in for Excel includes a comprehensive set of functions for the calibration of copulas using historical data and for simulating financial data.

See copulas and simulation for more information. Correlated Monte Carlo simulation not using copulas: The HoadleyCorrelSim and HoadleySimSingleIndex functions can be used to undertake correlated Monte Carlo simulations of lognormally distributed prices for two or more assets. The HoadleyCorrelSim function uses a full correlation matrix; the HoadleySimSingleIndex function is based on the "single Index" model where asset betas are used to infer cross-correlations instead of directly using a correlation matrix.

It is suitable for the simulation of very large portfolios. Whilst the capabilities of these functions can be exactly replicated using a Gaussian copula together with lognormally distributed marginals asset pricesin cases where a normal distribution of returns and simple linear correlation can be assumed these function will achieve the same result as a Gaussian copula but more efficiently.

A set of functions and components for calculating Value at Risk VaR and Conditional Value at Risk CVaR on multi-asset portfolios containing both linear eg stocks, futures, FOREX exposures and non-linear instruments eg options, bonds. Other features and tools include cash flow mapping for bonds and other interest rate assets, multi-asset portfolio volatility calculation, functions for calculating the Beta and R-Squared for individual assets and for portfolios, functions for the preparation of correlation and covariance matrices from historical prices using either equally weighted or EWMA models, and more.

See VaR tools for more information on features. Portfolio analytics for analysing the structure, risk, style and performance of investment portfolios. Functions and components for investment portfolio design and construction, optimization and simulation. Functions for company valuation and allocation of equity value using "industry standard" valuation models: The advantages of using add-in functions for business valuation rather than template spreadsheets include ease of incorporating functions into user-designed spreadsheets, presenting valuations of multiple companies side-by-side on a single sheet for comparative purposes, and performing sensitivity analysis on the key inputs: The add-in includes several components for retrieving on-line price histories, quotes and option chains:.

Historical price downloads from Yahoo: Toolbar and wizard for downloading price history for multiple symbols into a worksheet with one button click. Prices are aligned by date even when prices for some dates are missing from Yahoo eg because of trading suspensions, public holidays etc and several simple options are provided for handling missing prices.

Component for use in a VBA module for downloading history under program control. Historical dataset downloads from Quandl: Quandl is a repository of free and subscription-based historical data covering a large number of subject areas: Like for Yahoo, the add-in includes a toolbar and component for VBA modules to bring Quandl datasets into spreadsheets.

Visit the Quandl web site for more information. The add-in contains a number utility functions to perform common tasks:. The add-in includes a standard Windows help file containing comprehensive documentation of all functions and classes. The help file can be accessed either from the Windows program group or from the Hoadley menu which is inserted into the main Excel menu or ribbon bar Excel and above when the add-in is installed this can be removed if not wanted.

The help system is also integrated with the Excel function wizard. Functions can be inserted into your spreadsheet cells by selecting the required function from the Hoadley menu. Context sensitive help is available on the selected function by selecting "help on this function" from the function wizard.

The add-in also comes with a sample spreadsheet containing working examples of all functions and classes. The spreadsheet can be opened either from the Windows program group, or from the Hoadley menu in Excel.

On-line demo of key features 5 minutes. For detailed systems requirements, including supported versions of Windows and Excel see systems requirements. Purchase is on-line using credit card Visa or MasterCardor PayPal. PayPal accepts credit cards Visa, MasterCard, American Express, and Discoverand most debit cards. You can download immediately after payment with both payment methods. The above purchase price is a one time payment -- there are no on-going charges.

Purchase entitles you to download the product free of charge for a period of one year days from date of purchase to take advantage of any version upgrades during the free download period.

After the one year free download period has expired, you can continue using the product -- there are no additional charges. Use of this product for any business purpose when purchased under a private-use license is illegal. Why is the private-use license so inexpensive compared with other products? Does one license allow me to install the software on all my PCs?

Download of either version requires a simple registration. Examples include trading, building financial models for internal or customer use, providing advisory, training, consulting or other services to clients. Also the employee stock option functions, the HoadleyTrinomialTS function, and the HoadleyEfficientFrontier function for greater than ten assets are only available under a commercial license.

Home Search Hoadley Site. Overview Price List Buy now Login - Existing Users. General Enquiries Commercial License Enquiries. Overview Feature Highlights Premium Features. Without Dividends With Dividends. Value at Risk VaR Portfolio Analysis, Asset Allocation. Hoadley Finance Add-in for Excel Function Categories.

Historical volatility; correlation, cointegration. Portfolio insurance; hedging; profitability. Options or warrants on equities, currencies FOREXindices and futures. See the Options Strategy Evaluation Tool FAQ for how these option types are handled.

American and European exercise. Dividends specified either as an unlimited number of discrete payments, each consisting of an ex-dividend date and an amount, or as a continuous yield. Option pricing and "Greeks": Calculation of option prices and "Greeks" for American and European options. The HoadleyOptions1 function uses absolute dates for deal, expiration and ex-dividend dates; HoadleyOptions2 lets you specify these in days.

Calculation of implied volatility for American and European options. An Implied Volatility Calculator which will retrieve complete option chains from a number of on-line data providers is included with the add-in. Calculation of the percentage change in the price of the underlying that would be required to increase the option price by a specified percentage. The "percent-to-double" metric is one example of its use. HoadleyPercentToTarget1 uses absolute dates; HoadleyPercentToTarget2 uses days.

Calculation of values implied strike, implied spot, implied term, implied volatility and implied risk free rate implied from either an option price or an option delta. Can be used to identify options to meet specific hedging or other requirements. The HoadleyImply1 function uses absolute dates; HoadleyImply2 uses days. Pricing with time-varying interest rates: The HoadleyBinomialTS calculates prices, Greeks, and implied volatility taking into account a term structure of interest rates ie yield curve.

This function is useful during times of steepening yield curves where the pricing of American options using the usual assumption of constant rates may not be satisfactory. The function also handles Bermudan-style options which cannot be exercised prior to a specific date. Pricing with time-varying volatilities and time-varying interest rates: The HoadleyTrinomialTS includes all the functionality contained in the HoadleyBinomialTS function, and in addition it handles a term structure of volatilities -- ie volatilities that vary over the term of the option -- using a flexible recombining trinomial lattice.

Being able to capture the volatility term structure is particularly important for longer term options with American exercise. The function also optionally provides for a term structure of risky rates, which are used for discounting the option payoff, to be specified separately from the risk free rates -- for instance, to model counterparty risk for OTC options -- and allows borrowing and other costs to be specified together with discrete dividends.

This function is only available under a commercial license. Also calculates the volatility implied by the underlying asset distribution, the results of which can be used to graph the volatility smile for a range of strike prices.

SABR stochastic volatility model: Three functions which implement the SABR stochastic volatility model for European spot and futures options. A component VBA class which will analyze an American option specification and report on any optimal early exercise thresholds: See early exercise for more details on the conditions under which early exercise may be optimal. Barrier options single and double: Handles discrete barrier monitoring and rebates.

Dividends can be specified as an annual yield or as an unlimited number of discrete payments. HoadleyBasketOption calculates the value of a European basket option on a portfolio "basket" of underlying assets using an analytic moment matching approximation. HoadleyBasketSim calculates the value of both European and American basket options using correlated Monte Carlo simulation.

The Longstaff and Schwartz simulation model LSMC is used for the American pricing. Delayed start options DSOs: HoadleyDelayedStart calculates the the value and Greeks for European and American delayed start forward start options -- options which are valued and paid for 'today' but issued at some time in the future.

The strike of the option is set at the future issue date. The function can be used to value options on stocks with discrete dividends or dividend yieldsindices, futures and currencies.

how to graph call and put options in excel

HoadleySpreadOption calculates the price, hedge parameters and implied correlation for options on the price differential between two assets. Both European and American exercise handled. Uses a modified Black model for European options and Rubinstein's three dimensional binomial trees for American options. HoadleyCompoundOption for valuing European and American options-on-options using a binomial tree.

Options can be European on European, European on American, American on European or American on American. The function handles dividends expressed as a yield or as a schedule of discrete payments.

HoadleyAsianA calculates the value and "greeks" of an European Asian option using an analytic model. Handles averaging using either continuously or discretely observed underlying prices, and averaging which occurs over only a part of the option's life.

HoadleyAsianB uses a binomial tree to value both European and American-style Asian options. Four functions for valuing regular, single barrier and Asian Quanto options: The functions handle both European and American exercise.

An example of an exchanged traded quanto option is the CME Nikkei US dollar based futures option American style which is on a Yen-denominated asset but settled in US dollars. Nine functions for cash or nothing and asset or nothing, single barrier cash or nothing and asset or nothing, and double barrier cash or nothing, binary options. Fair value and "Greeks" are calculated for all options. Interest rate derivatives and convertible bonds.

HoadleyBond accepts a term structure of interest rates "zero coupon yield curve" as input. Handles exchange-traded bonds with ex-coupon dates. The Add-in also includes a function for bond portfolio immunization see section on Asset Allocation and Portfolio Optimization.

Floating rate notes FRNs: HoadleyFRNote for the valuation, and effective margin spread over swap, of FRNs "floaters". FRNs have defined maturity dates and coupon rates which are periodically reset based on a contract margin over a reference rate. The function accepts a term structure of interest rates Swap curve, LIBOR.

Exchange traded floating rate notes with ex-interest dates are handled as well as the grossing up of yields to take account of the impact of tax imputation franking credits. HoadleySwapIR for the valuation of standard and forward start delayed start interest rate swaps.

The function will calculate the value of the swap, and the value of the fixed and floating legs, for a given swap rate, or will calculate the swap rate for a fairly valued swap. Valuation can be at inception or at any time after commencement of the swap. HoadleySwapI FX for the valuation of standard and forward start delayed start cross-currency swaps. Exchange of principal amounts at the start of the swap can be included or excluded from the valuation. Valuation is by trinomial tree using the methodology by Tsiveriotis and Fernandes which takes into account issuer credit risk and the impact of embedded calls and puts -- none of which are correctly handled by the simplistic but widely used bond-plus-option approaches to valuation.

Both functions accept the zero curve as input. Both swaption functions accept the zero curve as input. Historical volatility, correlation, time series analysis cointegration etc. Un-weighted and exponentially weighted volatility: Includes alligator indicator for binary options equally weighted volatility calculations and calculations using the exponentially weighted moving average EWMA model.

When using EWMA the smoothing constant can be optionally calculated automatically using the maximum likelihood method. HoadleyGARCH uses the GARCH generalized autoregressive conditional heteroscedasticity model to calculate the volatility of an asset based on a sample of historical closing prices.

The function can also be used to forecast future volatilities and volatility term structures how volatility can be expected to change over time.

All GARCH parameters including standard errors and confidence interval information are automatically estimated using the maximum likelihood method.

See accuracy of HoadleyGARCH for further details. The GARCH function is used extensively in the Historic Volatility Calculator which is included with the choosing a forex broker version of the add-in.

how to graph call and put options in excel

The HoadleyGARCH function itself is only available in the full version of the add-in. The HoadleyVolatilityCone function produces information which can be used to plot volatility cones using historical prices.

Information demo forex trading app includes average, maximum, and minimum volatilities calculated using a rolling windows of a specified size, current tax implications company buying back shares with confidence interval bounds, how to graph call and put options in excel percentile bands.

Volatility cones can help determine whether current implied volatility eg from the Implied Volatility Calculator is high or low compared with historical volatility measured over the same period. Correlation and covariance matrices: Functions for creating correlation and covariance matrices from historic price or returns data, or from the exposures of assets to one or more underlying factors eg beta from the CAPM, or beta, LMS, and HML from the Fama-French three-factor model.

Unlike the simple Excel corr and covar functions these functions create an entire matrix with one function call and without the need to calculate asset returns from prices. Both correlation and covariance matrices can be produced using either the equally weighted model, book value per share of common stock equation the EWMA model as per the RiskMetrics telecom nz shares asx. Functions are included to convert correlation matrices to covariance matrices, and vice versa.

Correlation and volatility where price histories differ in length: The HoadleyCorrelStambaugh, HoadleyPricesStambaugh, and HoadleyReturnsStambaugh functions use the Stambaugh method to calculate the volatilities, correlation matrix, and geometric returns, or a set of complete synthetic historical prices, for assets where price histories have the same end date but different start dates.

Two functions for creating correlation matrices based on the Spearman Rho correlation coefficient HoadleyCorrelSpearman or the Kendall Tau correlation coefficient HoadleyCorrelKendall. Orthogonal EWMA OEWMA and Orthogonal GARCH OGARCH: Uses the methodology, based on principal component analysis, developed by Carol Alexander and described in the paper "Orthogonal methods for generating large positive semi-definite covariance matrices".

Two functions are also included enable the charting of daily direct and orthogonal volatilities for a given asset, which can be useful in assessing the suitability of the orthogonal models. HoadleyPriceDist measures the extent to which a sample of historical prices intra-day, daily, weekly HoadleyAutoCorrel calculates autocorrelation in returns and in squared returns using a sample of historic prices. Can be used, among other things, to determine the extent to which volatility clustering is present and hence the ticker tape rally stock market game of using GARCH to estimate volatility.

Includes the Ljung-Box test for statistical significance. HoadleyMLRperforms multiple or single linear regression. Returns coefficients, standard errors, t-stats, and R-Squared. Similar to Excel's LINEST function but output is more logically arranged and function is much faster. Principal Component Regression PCR: PCR is a method of dealing with multicollinearity -- highly correlated explanatory variables in a regression.

Multicollinearity, which is a common problem with fundamental factor models, may cause the results from regressions to be highly unstable. The HoadleyMLRCheck function checks for multicolloinearity in data using two standard indicators The Variance Inflation Factor VIF and condition numbers. The HoadleyPCR function performs a multiple linear regression uses principal component analysis to minimize the impact of Multicollinearity. HoadleyEngleGranger tests multivariate time series for cointegration using the Engle-Granger methodology.

Includes optional automatic lag length estimation for the Augmented Dickey-Fuller ADF test. Returns comprehensive statistics to aid interpretation of results. End of period probabilities: The HoadleyProbAtEnd function will calculate the probability that the underlying asset will be above or below a target price at the end of a specified number of days. Dividends on the underlying stock can be a continuous yield, unlimited discrete payments, or none.

Any time probabilities - analytic model: HoadleyProbAnyTime1 will calculate the probability that the underlying asset will be above or below a target price at any time during the period.

HoadleyProbAnyTime2 will calculate the probability that an asset will be outside either of two prices ie a target range, like the breakeven points of a straddle at any time during the period. It will also calculate the stock market for lester missions of moving outside both of the targets, and of being between the target prices at some time during the period.

These powerful functions, which provide valuable information for evaluating American options, and options and warrants with barriers and triggers, are only available in the full version of the add-in. Any time probabilities - trinomial tree model: HoadleyProbAnyTime1T and HoadleyProbAnyTime2T perform the same functions as the above analytic models, but in addition, because they use a trinomial tree methodology, can be used to calculate probabilities on stocks with discrete dividend payouts during the period which have no analytic solution.

Any-time probabilities are very sensitive to discrete dividends both the amount and timing. The HoadleySpotAtEnd function will calculate the spot or futures price at the end of a period, given a probability up or down. This function can be used to plot probability cones showing expected stock or futures price how to win in binary option profits wikipedia probability bands between "time now" and a future period.

The samples worksheet contains an example of how to plot probability cones. The HoadleySpotAnyTime function will calculate the spot price that has a specified probability of occurring at any time during a specified period of time. HoadleyProbDist calculates the probability distribution for lognormal and non-lognormal price distributions. The HoadleyProbDist function is only available in the full version of the add-in.

A class for use from a VBA module for running Monte Carlo simulations. Can be used to generate log-normally distributed prices with any number of discrete dividend payouts. Methods include calculation of probabilities which can be used to verify the accuracy of the above analytic and trinomial tree models.

Available only in the full version of the add-in. Position hedging -- adjusting the "Greeks": The HoadleyHedg e function will calculate the adjustments to current portfolio positions consisting of options and their underlying assets required to achieve specific hedge ratio targets with respect to one or more of a portfolio's position delta, position gamma, or position vega. For instance, dynamic hedging by simultaneously making a portfolio delta and vega neutral, or delta, gamma and vega neutral.

You can nominate whether the hedging adjustments should be made using options alone, or by using the underlying plus options. Several scenarios are returned by the function, each of which, in addition to meeting the specified hedge ratio targets with the minimum possible number of trades, will also meet supplementary targets. For example, maximizing the position theta of a delta and vega neutral portfolio so farmers livestock market oakdale hedger can derive maximum benefit from time decayor minimizing the outlay required to make a portfolio delta and gamma neutral.

The Implied Volatility Calculator contains a hedging optimization component which uses this function. Option Based Portfolio Insurance OBPI: Usually the beta of the portfolio to be insured will not make money online ways wbr one, meaning the expected portfolio returns will not mirror index returns.

Beta weighting is therefore used to ensure that these differences are taken into account. Constant Proportion Portfolio Insurance CPPI: Two functions HoadleyCPPI and HoadleyCPPIOnePath for the valuation, payoff at expiry, and analysis of investment portfolios insured using the CPPI methodology.

Handles rebalancing at discrete time periods, proportional transaction costs, and evaluation of "gap risk". An additional samples spreadsheet compares CPPI with Option Based Portfolio Insurance OBPI. Profit at option expiry: The HoadleyPLExpiry function calculates the profit or loss of an option trade at option expiry. Along with the other two profitability functions below, this function can be used to produce pay-off diagrams, and to analyze the profitability of individual options trades, multi-trade positions, and entire portfolios.

Profit if close prior to expiry: HoadleyPLIfClose calculates the profit or loss of an option trade if closed at any time prior to expiry. HoadleyPLUnderlying calculates the profit or loss of a position in an underlying asset as at a specified date and spot price The function takes into account dividends discrete or continuous which are received or paid during the period. This function would generally be used in association with the option profit and loss functions to, for instance, calculate the profit or loss from a covered call, or a zero cost collar.

The HoadleyFuturesPrice function calculates either the futures price, or the risk free rate implied by a given futures price. HoadleyFuturesConVal calculates the value of a futures contract that was entered into some time in the past. This represents the profit or loss of closing out a contract prior to maturity.

Value at Risk VaR -- "VaR tools ". Correlation and covariance matrix functions using historic price data. Unlike the simple Excel corr and covar functions the these functions create an entire matrix with one buying and selling stocks tips call and without the need to calculate asset returns from prices.

Both correlation and covariance matrices can be produced using either the equally weighted model, or the EWMA model. Both beta and r-squared can be calculated using the equally weighted model, or the EWMA model which gives more weight to recent data. These functions are useful for portfolio hedging or for portfolio "engineering".

For example, using index futures to remove beta market risk from an equity portfolio so it can earn an "absolute return" equal to the risk free rate plus alpha. HoadleyTracking Error will calculate the tracking error TE of a portfolio using a history of asset closing prices.

HoadleyActiveCorrel will calculate the correlation of active returns. Both work at home amazon mechanical turk be calculated using the equally weighted model or the EWMA model. HoadleyDownsideDeviation will calculate downside deviation, and HoadleyDownsideCorrel will calculate the downside correlation matrix for two or more assets. Using this methodology, the combination of downside deviation and correlation -- ie semicovariance -- can be used in standard Markowitz mean variance optimizers, like the Hoadley Portfolio Optimizerto perform portfolio Downside Risk Optimzation DRO without the need for specialized software.

HoadleyPortfolioVol will calculate the net volatility for a portfolio of assets taking into account the correlation between the assets and their individual volatilities. HoadleyPortfolioVolFX will calculate the net volatility for a portfolio containing a mixture of domestic and foreign assets.

HoadleyPortfolioReturnFX will calculate the expected return for a portfolio consisting of a combination of domestic and foreign assets with foreign currency exposures, some of which may be hedged. Active Portfolio Management Statistics: All measures are shown for individual assets and for the portfolio.

The residual correlation matrix is also produced by the function. An additional samples spreadsheet is available for download brokerage stock trading india illustrates how this function can be used to assess the impact on key active management statistics of changing the portfolio beta eg to 0 or 1 using index futures contracts.

Risk adjusted portfolio analysis using the M3 M-cubed methodology: HoadleyM3 calculates the proportions of an active portfolio, a passive portfolio benchmark and a riskless asset cash required to achieve a combined portfolio volatility equal to the benchmark volatility and a tracking error TE equal to a user-specified target TE.

The objective is to enable all active portfolio management statistics to be compared on a risk-adjusted basis, and to provide some guidance for portfolio construction. HoadleyStyleAnalysiswill analyze the style of a mutual fund or portfolio using returns-based methodology originally developed by William F Sharpe.

Hoadley Portfolio Style Analyzer: An Excel-based application that uses the HoadleyStyleAnalysis function to analyze the style of a portfolio or mutual fund. Performance measures based on Lower Partial Moments LPM: HoadleyPerformanceLPM will calculate a number of LPM measures Omega, Downside Deviation, Sortino Ratio, Kappa 3 and Upside Potential Ratio from the past returns of a fund or portfolio. LPM performance measures consider only negative deviations from a reference point when calculating risk, unlike variance which treats positive and negative deviations equally.

LPM measures therefore reflect the common view of risk as something undesirable. HoadleyCorrelCluste r performs a hierarchical cluster analysis on a correlation matrix, and re-arranges the matrix into clusters. The function also returns a step-by-step breakdown of the hierarchical clustering process to help with interpretation. Hoadley Correlation Analyzer application. This application, which uses the HoadleyCorrelCluster function, simplifies the analysis of correlation matrices.

HoadleyCorrelMergeAssets will physically reduce the dimensions of a correlation matrix by merging assets, or sectors, into clusters. The clustered correlation matrix correctly reflects the correlation of each cluster to all other clusters and non-clustered assets.

This powerful utility can be used to support a sub-portfolio approach to portfolio optimization where asset weights are, firstly, allocated within clusters using, eg Risk-Parity, then secondly across clusters using the same or a different approach eg MVO.

Other sub-portfolio aggregation requirements can be similarly handled. HoadleyDrawdown will analyze the drawdown history of a fund or portfolio using a history of returns. One besproigrishnaya binary options strategy more drawdowns within the analysis period can be highlighted eg usd inr exchange rate historical graph maximum drawdown and recovery dates, and the second largest drawdown and pricing foreign currency options with stochastic volatility datesand information is returned to enable the plotting of drawdown "under water" charts.

The drawdown function is used to produce the drawdown analysis in the Hoadley Portfolio Style Analyzer and in the Hoadley Factor Analyzer applications. Principal Component Analysis PCA: Options include several different types of data normalization, a choice of using equally weighted or EWMA models for covariance, and two options in the way returns are how to register a forex trading company. Functions are included to stock broker license check covariance and correlation matrices using all or a reduced number of the principal components, and to calculate the factor scores of the principal components themselves.

A spreadsheet can be downloaded which illustrates how Principal Component Analysis can be used in Arbitrage Pricing Theory APT applications in constructing factor basis portfolios, and asset-mimicking portfolios from the factor portfolios requires full version of add-in. Risk decomposition with statistical factor model: Two functions to simplify the data management and computation issues associated with calculating value at risk VaRpreparing correlation matrices etc by providing a simple means of aggregating the individual assets of sub-portfolios into higher level portfolios.

HoadleyPortAggregate aggregates a portfolio of any number of individual assets into a single weighted price series which can be used to represent the sub-portfolio in any functions which accept historical prices as input. HoadleyPCAPortAggregate also aggregates a portfolio but uses principal component analysis PCA to limit the number of principal components used. The Jorion Bayes-Stein shrinkage model returns and covariance or the Ledoit-Wolf shrinkage model covariance can be used.

The Jorion estimators adjust returns and covariances using the minimum variance portfolio as the shrinkage target. The Ledoit-Wolf estimator uses a target based on the average correlations across asset pairs. Black-Litterman asset allocation model: Six functions providing a full implementation of the Black-Litterman Bayesian asset allocation model for portfolio design. The starting point for the Black-Litterman model is a market equilibrium portfolio.

The functions will back-out implied asset class or sector returns from market cap or portfolio weights by reverse optimization. Two methods are provided: The implied returns represent a market-neutral reference point -- a set of expected equilibrium returns. One or more returns may then be modified, to reflect user views which differ from those implied by the market, by applying absolute and relative views or tilts, with specified levels of confidence. An optimal unconstrained portfolio based on these views is then be produced.

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To simplify using the Black-Litterman functions the Hoadley Black-Litterman Returns Estimator application is included with the full version of the Add-in. This application, which uses the Black-Litterman functions as the calculation engine, provides a convenient way of implementing the Black-Litterman model without the need to use the functions directly.

View the Black-Litterman tutorial Black-Litterman licensing: The functions HoadleyEfficientFrontier and HoadleyMVOTarget implement the Markowitz critical line algorithm. The HoadleyEfficientFrontier function produces a user specified number of efficient portfolios providing a range of returns starting at the minimum variance portfolio and ending at the maximum return portfolio.

The optimal tangency portfolio which maximizes the Sharpe ratio is also returned. The function can be used in a worksheet, or in a VBA module. The HoadleyMVOTarget function also uses the critical line algorithm and is used to produce the lowest risk portfolio for a single target return, or the highest return portfolio for a single target volatility. The functions will return the weights by constraint eg by industry or risk factor as well as by individual asset. An Excel-based application which Analyzes a portfolio of stocks and produces the efficient frontier and capital market line using mean variance optimization.

The "Pro" version of the portfolio optimizer uses the HoadleyEfficientFrontier function as the optimization engine. See Portfolio Optimizer for details. Increasingly seen as an alternative to mean-variance optimization in some situations, the objective of risk-based portfolio construction is to maximise the diversification of risk. The Hoadley Finance Add-in for Excel includes a number of functions for risk based allocation: HoadleyRiskParitywill estimate the portfolio weights required to equalize the contribution of each asset or asset class to overall portfolio volatility Equal Risk Contribution ECR portfolios ; HoadleyMDP will estimate the weights for the Most Diversified Portfolio Maximum Diversification Portfolio as described by Choueifaty and Coignard ; HoadleyMVP will estimate the weights of a long-only minimum variance portfolio; HoadleyPCARisk will calculate the degree to which a portfolio is diversified across underlying principal component risk factors -- the "diversification index" as describe by Attilio Meucci -- and will estimate the weights of the lowest volatility Diversified Risk Parity DRP portfolio, where risks are spread evenly across underlying risk factors rather than across assets.

HoadleyMinTorsionRisk implements the Meucci Minimum-Torsion Bets model which, like the principal component model, measures diversification using a set of uncorrelated orthogonal risk factors. However the orthogonal factors are designed to retain a more direct relationship to the original assets or factors than under the principal component model.

The HoadleyMinTorsionParity function will calculate the weights of a long-only portfolio which spreads risk evenly across the minimum-torsion bet factors. An additional sample spreadsheet covering risk based asset allocation is available for download. Bond portfolio target-date immunization: The HoadleyBondImmunize function immunizes a portfolio of bonds against interest rate fluctuations while maximizing the portfolio yield to maturity.

Weight constraints can be specified for individual bonds, and for groups of bonds. The impact of tax on asset allocation is significant for personal investors. Two functions are included to convert pre-tax expected returns, volatilities and market values to their after-tax equivalents for use with the HoadleyEfficientFrontier function or the Hoadley Portfolio Optimizer.

An additional sample spreadsheet is available which illustrates tax-adjusted portfolio optimization for a new portfolio, for an existing portfolio with embedded tax liabilitiesand for the allocation of assets across taxable, tax deferred, and tax-exempt accounts. Portfolio Monte Carlo Simulation: A key feature is the ability to model the impact of periodically rebalancing the portfolio back to an optimal eg from the Hoadley Portfolio Optimizer or strategic asset allocation.

The simulation class is used in the Portfolio Monte Carlo Simulator. Retirement planning using Monte Carlo Simulation: A class for preparing retirement plans using Monte Carlo simulation. The retirement planning class is used in the Hoadley Retirement Planner. Dividend discount DD models: Two functions for the valuation of equity using the dividend discounted cash flow model. HoadleyValuationDD3 implements a three-stage model consisting of a relatively high or low growth initial stage, a transition stage, and a long term stable stage.

Free cash flow to equity FCFE discount models: Two functions for the valuation of equity using the FCFE model. This model is often used to value companies which have a relatively low dividend payout ratio and which are retaining more cash than they can afford to return to shareholders.

HoadleyValuationFCFE2 implements a two-stage version of this model; HoadleyValuationFCFE3 implements a three-stage version. Free cash flow to the firm FCFF discount models: With the FCFF model future cash flows are discounted using the weighted average cost of capital WACCrather than the cost of equity which is used in the DD and FCFE models.

HoadleyValuationFCFF2 implements a two-stage version of this model; HoadleyValuationFCFF3 implements a three-stage version.

Implied Equity Risk Premium ERP: A function, HoadleyImpliedERPDD2to calculate the Equity Risk Premium implied by a market index.

The underlying valuation model used is the two-stage dividend discount model. Option Pricing Method OPM: A template application for the allocation of value for venture capital-backed and private equity-backed companies across all equity classes preferred stock, convertible debt, common stock etc using the OPM.

The OPM template application is suitable for the preparation of US IRS section A valuations. Given long-term stable estimates of growth, payout ratios and interest rates etc. Can be applied to either individual firms or market indices. Adjusting betas for leverage: The relevered beta could then be used to calculate the future weighted average cost of capital WACC for firm valuation purposes. The function can also be used to calculate a firm's unlevered beta. Quotes from Yahoo free: The quotes, which are free of charge, are supplied by Yahoo finance.

Most exchanges around the world are supported. The type of information available instrument types, delayed, real-time depends on Yahoo's support for each exchange. See Yahoo exchange list for a list of exchanges covered and the suffixes to use with stock symbols when requesting quotes.

Streaming dynamic real-time quotes: The Finance Add-in includes functions plus design wizards to deliver streaming ie dynamic, without the need to manually refresh into Excel spreadsheet cells Excel or above required. Unlike DDE solutions, stock codes and field names do not need to be hard-coded in formula cells.

The following quote sources are currently explicitly supported by the add-in but note that the add-in can use data from any source that can be brought into an Excel spreadsheet -- see notes below: Equity, index and option quotes.

Subscription to WebLink's BullSignal data service is required. A wide range of instruments including futures options and markets are supported by eSignal.

Subscription to eSignal required. More details on instruments and markets. Interactive Brokers US and international markets: A wide range of instruments and markets are supported by IB. Equity and index quotes. Free registration with MoneyAM required. Equity, futures, index and option equity, index and futures options quotes.

Stockwatch Canadian and US markets: Subscription to Stockwatch required. TD Ameritrade US markets: Free to TD Ameritrade customers. A component for use in a VBA module for retrieving entire on-line option chain snapshots into spreadsheets.

Exchanges currently supported include US Exchanges using Yahoo,or CBOE as the provder, and Eurex not futures optionsThese providers provide free data delayed 15 minutes.

A comma delimited text file containing option chain data can also be used by the add-in. The format of the text file is described in the option chain help file documentation, and a sample application which illustrates how to create a compatible text file is available for download.

Included with the add-in is an Implied Volatility Calculator which uses the option chain component to retrieve option chains. Implied volatility, implied volatility surface, Greeks, and theoretical vs market pricing comparisons are then automatically calculated for the entire chain. The Options Strategy Evaluation Tool will also utilize the option chain component if the full version of the add-in is installed.

None of the pricing, volatility, probability or any other functions in the add-in depend on being able to retrieve on-line data using the above data components.

All add-in functions, like Excel's own functions, are completely independent of any data source. The main purpose of the on-line data components in the add-in is to provide simple-to-use data sources for position valuation, scenario evaluation, option chain analysis etc.

Data from any other sources can be used in place of data retrieved by using the above on-line data components. No guarantee can be given that free, subscription, or broker price data, or option chain data, will continue to be provided in the future by any of the information providers currently used by the add-in, that all types of options available on an exchange will be available through the option chain interface, or that the data which are currently available will continue to be available from any of the currently supported information providers in the future.

No guarantee can be given that providers will not change the format of their data in the future, or that following any change to data formats the add-in will continue to provide an interface to these providers. Two data providers BullSignal, and eSignal require bit Excel and cannot be used with bit Excel. This is because the application programming interface API software supplied by these providers is bit.

These two providers can be used under bit Windows, but Excel bit must be installed. All other streaming quotes and option chain providers will run under both bit and bit Excel. HoadleyRateCon for conversion of rates expressed in one compounding frequency to another. Five utility functions to convert nominal rates and risk premiums to their real equivalents and vice-versa, eg for investment valuation and to calculate the inflation rate implied by real and nominal rates.

HoadleyForwardRate to calculate the forward rate applying between two future periods. HoadleyZeroRate to calculate the zero coupon rate implied by a forward rate and a zero rate.

HoadleyInterpolation to estimate missing numbers in a series eg in a yield curve using either linear or cubic spline interpolation.

Discrete dividends to yield: Volatility adjustment functions for discrete dividends: Two functions to improve the accuracy of option valuation with discrete dividends when using historical, as opposed to implied, data for volatility estimates. Two functions to check the integrity of correlation or covariance matrices ie that they are positive definite or positive semi definite and a function to make minor changes to invalid matrices to ensure they are internally consistent.

HoadleyPriceMatrix to convert a matrix of historical prices by date by ticker symbol, which may contain missing prices and non-trading days, to a form suitable for the calculation of beta, r-squared, correlation and covariance matrices etc.

Several simple methods are available to handle missing prices. Private-use non-corporate, non-commercial license. Free to download, includes full documentation and samples, but many of the functions are non-operational. The trial version has a 50 second start up delay and will work for a maximum of two minutes per session, before returning zero results for all functions. As such, it is not a usable version; it is provided as an evaluation tool for those who would like more detail on what the add-in does and how it works prior to making a purchase decision.

This is a one-time cost; there are no on-going costs. Show estimate in your local currency. When you buy the Finance Add-in for Excel you also get the options applications summarized here and the portfolio analysis and design tools summarized here. Everything is included in the one price. By downloading the Excel add-in you signify your assent to these Terms of Use.

By purchasing a private-use license you signify that you have read and understood the feature set covered by this license as defined on this Licensing Summary page.

The add-in is made available to experienced Microsoft Excel users who have a good understanding of how to locate and install add-ins on their PCs running Microsoft Windows, and how to use add-in functions in Excel spreadsheets.

No guarantee can be given that free on-line stock or other price data, or free on-line option chain data will be available in the future or that any of the information providers currently used will not change their data formats in the future without notice.

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