Financial Modeling with Crystal Ball and Excel, + Website

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  • Edition: 2nd
  • Format: Paperback
  • Copyright: 2012-06-05
  • Publisher: Wiley
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Financial Modeling with Crystal Ball and Excel 2E provides tools and techniques you to need know to perform spreadsheet simulation, and answers the essential question of why risk analysis is vital to the decision-making process, whatever the problem you are facing in finance and investment. After reviewing the basics, this book covers how to define and refine probability distributions in financial modeling, and exhaustively reviews the concepts behind the simulation modeling process. It discusses simulation controls and analysis of simulation results. Exercises models help you apply risk analysis to such areas as derivative pricing, cost estimation, portfolio allocation and optimization, design analysis, and cash flow analysis. The tools and techniques reviewed are designed to make anyone expert in financial modeling and simulation. They will help you immediately develop essential skills in the areas of areas of valuation, pricing, hedging, trading, risk management, project evaluation and portfolio management. 

Author Biography

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

Prefacep. xi
Acknowledgmentsp. xvii
About the Authorp. xix
Introductionp. 1
Financial Modelingp. 2
Risk Analysisp. 2
Monte Carlo Simulationp. 4
Risk Managementp. 8
Benefits and Limitations of Using Crystal Ballp. 9
Analyzing Crystal Ball Forecastsp. 11
Simulating a 50-50 Portfoliop. 11
Varying the Allocationsp. 22
Presenting the Resultsp. 27
Building A Crystal Ball Modelp. 29
Simulation Modeling Processp. 29
Denning Crystal Ball Assumptions and Forecastsp. 30
Running Crystal Ballp. 33
Sources of Errorp. 34
Controlling Model Errorp. 36
Selecting Crystal Ball Assumptionsp. 37
Crystal Ball's Basic Distributionsp. 37
Using Historical Data to Choose Distributionsp. 55
Specifying Correlationsp. 64
Using Decision Variablesp. 79
Denning Decision Variablesp. 79
Decision Table with One Decision Variablep. 81
Decision Table with Two Decision Variablesp. 87
Using OptQuestp. 98
Selecting Run Preferencesp. 105
Trialsp. 105
Samplingp. 109
Speedp. 111
Optionsp. 113
Statisticsp. 115
Net Present Value and Internal Rate of Returnp. 117
Deterministic NPV and IRRp. 117
Simulating NPV and IRRp. 119
Capital Budgetingp. 123
Customer Net Present Valuep. 133
Modeling Financial Statementsp. 137
Deterministic Modelp. 137
Tornado Chart and Sensitivity Analysisp. 138
Crystal Ball Sensitivity Chartp. 139
Conclusionp. 143
Portfolio Modelsp. 145
Single-period Crystal Ball Modelp. 145
Single-period Analytical Solutionp. 148
Multi-period Crystal Ball Modelp. 149
Value at Riskp. 155
VaRp. 155
Shortcomings of VaRp. 157
Conditional Value at Riskp. 157
Simulating Financial Time Seriesp. 163
White Noisep. 163
Random Walkp. 165
Autocorrelationp. 166
Additive Random Walk with Driftp. 170
Multiplicative Random Walk Modelp. 173
Geometric Brownian Motion Modelp. 176
Mean-reverting Modelp. 180
Financial Optionsp. 187
Types of Optionsp. 187
Risk-neutral Pricing and the Black-Scholes Modelp. 188
Portfolio Insurancep. 192
American Option Pricingp. 194
Exotic Option Pricingp. 197
Bull Spreadp. 201
Principal-protected Instrumentp. 201
Real Optionsp. 205
Financial Options and Real Optionsp. 205
Applications of Real Options Analysisp. 206
Black-Scholes Real Options Insightsp. 209
Real Options Valuation Toolp. 211
Credit Riskp. 221
Expected Lossp. 221
Credit Risk Simulation Modelp. 223
Conditional Value at Riskp. 225
Using CVaR to Manage Credit Riskp. 227
Construction Project Managementp. 229
Project Descriptionp. 229
Choosing Construction Methodsp. 231
Risk Analysisp. 231
Stochastic Optimizationp. 234
Oil and Gas Explorationp. 235
Well Propertiesp. 235
Statistical Modelsp. 236
Conclusionp. 239
Crystal Ball's Probability Distributionsp. 241
Bernoullip. 241
Betap. 243
Beta PERTp. 244
Binomialp. 246
Customp. 247
Discrete Uniformp. 251
Exponentialp. 252
Gammap. 254
Geometricp. 255
Hypergeometricp. 257
Logisticp. 259
Lognormalp. 260
Maximum Extremep. 262
Minimum Extremep. 263
Negative Binomialp. 264
Normalp. 266
Paretop. 267
Poissonp. 269
Student's tp. 270
Triangularp. 272
Uniformp. 273
Weibullp. 275
Yes-Nop. 276
Generating Assumption Valuesp. 279
Generating Random Numbersp. 279
Generating Random Variatesp. 282
Latin Hypercube Samplingp. 284
Variance Reduction Techniquesp. 287
Using Crystal Ball to Value an Asian Optionp. 288
Antithetic Variatesp. 289
Control Variatesp. 289
Comparisonp. 290
Conclusionp. 292
About the Downloadp. 293
Glossaryp. 297
Referencesp. 301
Indexp. 311
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