Image of Financial Modelling in Practice: A Concise Guide for Intermediate and Advanced Level (The Wiley Finance Series)
Amazon UK
Click to Buy

Image of Financial Modelling in Practice: A Concise Guide for Intermediate and Advanced Level (The Wiley Finance Series)
Amazon US
Click to Buy

Michael wrote this book based on his experience of the current needs of the modelling community: First, that many modellers have a reasonable knowledge of core Excel functionality, but desire to increase and consolidate their knowledge in a way that is prioritised, focused, practical, and application-driven. Second, that there is a need for a text which helps modellers to design, to structure and to build models which are relevant, accurate, and readily understandable. Third, that there is an increasing need to conduct uncertainty analysis as part of the modelling process.

The contents are based on many years’ experience of building models in business and finance, and of training others how to do so. The aim was to write a guide which is as comprehensive as possible within the space available, but which is also concise, disciplined, and focussed in its selection of topics.

The book is structured into six Chapters:

  • Chapter 1 reviews a selection of Excel functions that are generally most relevant for building intermediate and advanced level models. It presents many practical examples of the application of these functions.
  • Chapter 2 discusses the principles involved in designing, structuring and building relevant, accurate and readily understandable models. Topics covered include the use of sensitivity analysis, best practice modelling principles and related issues, and model auditing tools.
  • Chapter 3 covers the modelling of financial statements and of cash flow valuation. We discuss a variety of ways to deal with each of the core modelling issues that arise in these applications.
  • Chapter 4 covers risk and uncertainty modelling. Many practical applications and example models are presented in an intuitive and accessible way. We use an add-in to Excel to implement simulation models; such an approach also allows readers to rapidly build their own models.
  • Chapter 5 covers options and real options modelling, treating these as a natural extension of risk modelling. The approach to real options modelling is less theoretical than in some other texts, and does not specifically require knowledge of financial market derivatives. Models are implemented using Excel as well as add-ins for simulation and decision trees, and readers should be able to build their own models after reading this Chapter.
  • Chapter 6 covers VBA for financial modelling applications. The topics selected for inclusion have been established by consideration of the core types of financial models that frequently require the use of VBA. The Chapter should provide beginners in this area with a focussed and practical guide to the topic, and a base on which to discover the richer possibilities available to modellers by using VBA.

The model examples are included in an attached CD-ROM. This text is designed to be read in conjunction with these models; readers relying purely on the text and the screenshots are unlikely to obtain the maximum benefit. The examples are generally built and presented in Excel 2007. Users of Excel 2003 should nevertheless find this text of equal value: First, menu sequences for Excel 2003 are also provided. Second, the text may facilitate Excel 2003 users who wish to convert to Excel 2007. A few of the example files (in Chapter 1 and Chapter 2 only) use functions which are new in Excel 2007. The model examples in Chapter 4 use the Excel add-in @RISK® from Palisade Corporation, and those in Chapter 5 use both @RISK® and PrecisionTree® (also from Palisade Corporation). A free 15-day trial version of these products is available on the Palisade web-site.