Financial Modeling with Crystal Ball and Excel

by John Charnes

Overview

Updated look at financial modeling and Monte Carlo simulation with software by Oracle Crystal Ball

This revised and updated edition of the bestselling book on financial modeling provides the tools and techniques needed to perform spreadsheet simulation. It answers the essential question of why risk analysis is vital to the decision-making process, for any problem posed in finance and investment. This reliable resource reviews the basics and covers how to define and refine probability distributions in financial modeling, and explores the concepts driving the simulation modeling process. It also discusses simulation controls and analysis of simulation results.

The second edition of Financial Modeling with Crystal Ball and Excel contains instructions, theory, and practical example models to help apply risk analysis to such areas as derivative pricing, cost estimation, portfolio allocation and optimization, credit risk, and cash flow analysis. It includes the resources needed to develop essential skills in the areas of valuation, pricing, hedging, trading, risk management, project evaluation, credit risk, and portfolio management.

• Offers an updated edition of the bestselling book covering the newest version of Oracle Crystal Ball
• Contains valuable insights on Monte Carlo simulation—an essential skill applied by many corporate finance and investment professionals
• Written by John Charnes, the former finance department chair at the University of Kansas and senior vice president of global portfolio strategies at Bank of America, who is currently President and Chief Data Scientist at Syntelli Solutions, Inc. Risk Analytics and Predictive Intelligence Division (Syntelli RAPID)

Engaging and informative, this book is a vital resource designed to help you become more adept at financial modeling and simulation.

Product Details

ISBN-13:	9781118161135
Publisher:	Wiley
Publication date:	08/04/2011
Series:	Wiley Finance , #341
Sold by:	JOHN WILEY & SONS
Format:	eBook
Pages:	288
File size:	18 MB
Note:	This product may take a few minutes to download.

About the Author

John Charnes, PhD, MBA, is President of the Risk Analytics and Predictive Intelligence Division (RAPID) of Syntelli Solutions Inc. Prior to this, he was finance department chair at the University of Kansas and senior vice president of global portfolio strategies at Bank of America. Charnes created the Crystal Ball Training CD, a multimedia course on the basic elements of stochastic modeling with Crystal Ball, acquired by Oracle. His specialty is the application of computer simulation and statistical methods for identifying and solving business problems, including the use of simulation for option pricing and hedging with derivatives to comply with Financial Accounting Standard (FAS) 133.

Table of Contents

Preface.

Acknowledgments.

About the Author.

Chapter 1: Introduction.

Financial Modeling.

Risk Analysis.

Monte Carlo Simulation.

Risk Management.

Benefits and Limitations of Using Crystal Ball.

Chapter 2: Analyzing Crystal Ball Forecasts.

Simulating A 50–50 Portfolio.

Varying the Allocations.

Presenting the Results.

Chapter 3: Building a Crystal Ball Model.

Simulation Modeling Process.

Defining Crystal Ball Assumptions.

Running Crystal Ball.

Sources of Error.

Controlling Model Error.

Chapter 4: Selecting Crystal Ball Assumptions.

Crystal Ball’s Basic Distributions.

Using Historical Data to Choose Distributions.

Specifying Correlations.

Chapter 5: Using Decision Variables.

Defining Decision Variables.

Decision Table with One Decision Variable.

Decision Table with Two Decision Variables.

Using OptQuest.

Chapter 6: Selecting Run Preferences.

Trials.

Sampling.

Speed.

Options.

Statistics.

Chapter 7: Net Present Value and Internal Rate of Return.

Deterministic NPV and IRR.

Simulating NPV and IRR.

Capital Budgeting.

Customer Net Present Value.

Chapter 8: Modeling Financial Statements.

Deterministic Model.

Tornado Chart and Sensitivity Analysis.

Crystal Ball Sensitivity Chart.

Conclusion.

Chapter 9: Portfolio Models.

Single-Period Crystal Ball Model.

Single-Period Analytical Solution.

Multiperiod Crystal Ball Model.

Chapter 10: Value at Risk.

VaR.

Shortcomings of VaR.

CVaR.

Chapter 11: Simulating Financial Time Series.

White Noise.

Random Walk.

Autocorrelation.

Additive Random Walk with Drift.

Multiplicative Random Walk Model.

Geometric Brownian Motion Model.

Mean-Reverting Model.

Chapter 12: Financial Options.

Types of Options.

Risk-Neutral Pricing and the Black-Scholes Model.

Portfolio Insurance.

American Option Pricing.

Exotic Option Pricing.

Bull Spread.

Principal-Protected Instrument.

Chapter 13: Real Options.

Financial Options and Real Options.

Applications of ROA.

Black-Scholes Real Options Insights.

ROV Tool.

Summary.

Appendix A: Crystal Ball’s Probability Distributions.

Appendix B: Generating Assumption Values.

Appendix C: Variance Reduction Techniques.

Appendix D: About the Download.

Glossary.

References.

Index.