30177 - FINANCIAL MODELLING

The course provides the technical skills for implementing financial models with Excel. Students are equipped with the basic operational tools to understand financial markets and can employ the modelling abilities developed via sample applications to build their own models. Coursework mainly focuses on functions already embedded in the worksheet as well as on procedures designed to solve specific problems. The course concentrates on the application of several theoretical models for financial valuation, optimal portfolio choice and performance evaluation.

• Tools: introduction to Excel (array, financial and statistical functions) and add-ins (Solver and Data Analysis)
• Mean-variance portfolio choice: efficient frontier with and without shortselling constraints; parameter uncertainty
• Bonds: duration, convexity, immunization and the term structure of interest rates
• Stocks: CAPM, beta estimation and the security market line; introduction to APT and multi-factor models
• Options: binomial model, lognormal distribution and Black-Scholes model
• Style analysis

• Final written exam, no intermediate exam.
• Same assessment method and exam syllabus for attending and non-attending students.

S. BENNINGA, Financial Modeling, MIT Press 2008, 3rd Edition.

An intermediate level of Excel knowledge is assumed. Students with a basic knowledge are expected to fill their gaps before starting the course. Several Excel user manuals can come handy, for instance ‘How to do everything in Microsoft Office Excel 2003’ by G. Hart-Davis, McGraw Hill. Prior exposure to finance is beneficial, although not essential.