Financial Modelling in Practice A Concise

How do you estimate the value of a security when its future trajectory, or the trajectory of the other securities or economic variables it depends on, is unknown? Based on the authors many years of real-life solutions to financial modeling, Financial Modelling in Practice teaches readers how to build and operate a range of financial models. This practical, in-depth guide provides an in-depth look at financial modeling and covers the full range of topics that are truly relevant to financial engineers, academics, and students in financial modeling.

Michael Rees gained a BA with First Class Honours and a Doctorate in Mathematics from Oxford University in 1985 and 1988 respectively. In 1992 he gained an MBA with Distinction from INSEAD, and in 2003 graduated in first position on the Certificate in Quantitative Finance program, also winning the Wilmott award.

Since 2002 Michael has worked independently as a consultant and trainer in financial modelling. Prior to this he worked as a strategy consultant with Braxton Associates and Mercer Management Consulting, and also as an analyst at J.P. Morgan.

Michael lives in Richmond, UK. He was born in Canada, has lived in several countries, and is fluent in French and German.

Background, Objectives and Approach
About The Author
Acknowledgements
Building Blocks: Selected Excel Functions and Tools
Core Functions for Financial Modelling
Arithmetic Operations
Logical Operations
Financial Calculations
Database Functions, Features and Pivot Tables
Statistical Functions
Lookup and Reference Functions
Text Functions
Information Functions
Array Functions, Formulae and Matrix Calculations
GoalSeek and Solver
The Analysis ToolPak and Other Add-ins
Selected Excel Short-cuts
Principles of Modelling
What is a Good Model?
Model Design
Selection of Model Variables and their Dependencies
Level of Detail or Aggregation
Model Structure and Planning
Logical FlowCompactness
Named Ranges
Circular References
Model Building
Formatting and Comments
Creating Robust Formulae
Results Presentation and Other Uses of Sensitivity Analysis
General Remarks on Presentation
Using Data Tables to Conduct Sensitivity Analysis
Hiding and Protecting Models
Model Auditing
Financial Statement, Cash Flow and Valuation Modelling
Financial Statement Modelling: Core Points and Example
General Comments
Income Statement Forecasting
Balance Sheet Forecasting
Cash Flow Statement Forecasting
Error Checks and Feasibility Checks
General Error Checking Tools
Feasibility Checking and Ratio Analysis
Adding Generality
Cash Flow Valuation
Calculation of Free Cash Flow
Discounting Free Cash Flow
Terminal Value Calculations
Further Adjustments
Sensitivity Analysis
Risk Modelling
Benefits and Challenges of Risk Modelling
The Risk Modelling Process
An Introduction to Simulation Techniques
The Language of Probability Distributions
Quick Guide to using @RISK
Types of Dependency Relationships in Risk Models
The Selection and Use of Distributions
Pragmatic Approaches and Distributions
Data-Driven Approaches and Distributions
Scientific Approaches and Distributions: The Basics
Further Aspects of the Science of Distributions
Further Example Models
Introduction to Options and Real Options Modelling
Financial Market Derivatives: An Introduction
Real Options Modelling
Uses and Relationships to Other Types of Analysis
Examples using Simulation
Examples using Trees
VBA for Financial Modelling
Introduction
The Bare Essentials
Simple Examples
Building Blocks
Working with Ranges
Writing Robust Code
Further Topics
Object Orientation: An Introduction
Controlling Execution and Related Topics
Working with Functions
Checking and Debugging Code
Examples: Recording Macros and Related Topics
Introduction
Using GoalSeek and Solver
Examples: Simulation Modelling
Introduction
Examples: User-defined Functions
Creating Functions
Examples
Structure and Organisation: Further Topics
Further Reading
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Financial Modelling in Practice A Concise Guide for Intermediate and Advanced Level

Summary

Author Biography

Table of Contents

Supplemental Materials