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Encyclopedia of Financial Models, 3 Volume Set by Frank J. Fabozzi

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Introduction to Financial Model Building with MATLAB

DESSISLAVA A. PACHAMANOVA, PhD

Associate Professor of Operations Research, Babson College

Abstract: MATLAB is a modeling environment that allows for input and output processing, statistical analysis, simulation, and other types of model building for the purpose of analysis of a situation. MATLAB uses a number-array-oriented programming language; that is, a programming language in which vectors and matrices are the basic data structures. Reliable built-in functions, a wide range of specialized toolboxes, easy interface with widespread software like Microsoft Excel, and beautiful graphing capabilities for data visualization make implementation with MATLAB efficient and useful for the financial modeler.

MATLAB is an interactive computing environment for model development that also enables data visualization, data analysis, and numerical simulation. The core of the MATLAB environment was created as a number-array-oriented programming language; that is, as a programming language in which vectors and matrices are the basic data structures. (MATLAB stands for Matrix Laboratory.) Operations involving matrices and vectors can be performed efficiently within the core MATLAB software product. More specialized operations, such as statistical data analysis, optimization, and simulation, can be accessed by purchasing some of MATLAB's specialized toolboxes. Once a toolbox is installed, functions from the toolbox can be called in the same ...

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