Financial Modelling in Practice

Introduction

A central element of the job of any professional in corporate finance, fund management, security analysis, or risk management is the real-world application of financial theories to provide quantitative answers to various problems. As those theories are usually presented in a sterile, simplified environment for pedagogical reasons, it is often not straightforward how they can be implemented in practice. This course aims at showing students how the sometimes abstract models and theories are used to address real-world problems encountered in practice. The practical implementation of the theories and models also facilitates the complete understanding of them. Additionally the students will be benefited by having created throughout the course a collection of templates that can be readily used later on in practice.

Probably the most widely used tool by financial practitioners is Excel. During the course students will learn how to use this powerful program to apply a series of financial models which the students will likely have encountered in their previous courses. For each concept applied the course will provide a brief overview of the relevant theory or model but focus mostly on the practical side of the implementation. It will explain how these models can be implemented in Excel using its built-in functions, matrix calculation, and programming language (VBA). The course will also highlight which real-world financial data is the appropriate input for those models. It will point out different modeling options and discuss advantages and limitations of those approaches. The content of the course will employ theories that have been taught in previous classes. In various areas, the course will delve deeper and provide students with state of the art models that go beyond what was covered in previous courses. Thus, a good understanding of the material covered in the previous finance courses is required to fully benefit from this course.

Course content

• Introduction to Excel and Bloomberg
• Valuation and Capital Budgeting
• Portfolio Choice and Black-Litterman Model
• CAPM and Cost of Capital
• Excel VBA Programming
• Monte Carlo Simulation in Excel