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Financial Modeling with Crystal Ball and Excel, + Website, 2nd Edition

Book Description

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.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Preface
    1. ORGANIZATION OF THIS BOOK
  6. Acknowledgments
  7. About the Author
  8. Chapter 1: Introduction Introduction Financial Modeling with Crystal Ball and Excel
    1. 1.1 FINANCIAL MODELING
    2. 1.2 RISK ANALYSIS
    3. 1.3 MONTE CARLO SIMULATION
    4. 1.4 RISK MANAGEMENT
    5. 1.5 BENEFITS AND LIMITATIONS OF USING CRYSTAL BALL
  9. Chapter 2: Analyzing Crystal Ball Forecasts
    1. 2.1 SIMULATING A 50–50 PORTFOLIO
    2. 2.2 VARYING THE ALLOCATIONS
    3. 2.3 PRESENTING THE RESULTS
  10. Chapter 3: Building A Crystal Ball Model Building A Crystal Ball Model Financial Modeling with Crystal Ball and Excel
    1. 3.1 SIMULATION MODELING PROCESS
    2. 3.2 DEFINING CRYSTAL BALL ASSUMPTIONS AND FORECASTS
    3. 3.3 RUNNING CRYSTAL BALL
    4. 3.4 SOURCES OF ERROR
    5. 3.5 CONTROLLING MODEL ERROR
  11. Chapter 4: Selecting Crystal Ball Assumptions
    1. 4.1 CRYSTAL BALL’S BASIC DISTRIBUTIONS
    2. 4.2 USING HISTORICAL DATA TO CHOOSE DISTRIBUTIONS
    3. 4.3 SPECIFYING CORRELATIONS
  12. Chapter 5: Using Decision Variables
    1. 5.1 DEFINING DECISION VARIABLES
    2. 5.2 DECISION TABLE WITH ONE DECISION VARIABLE
    3. 5.3 DECISION TABLE WITH TWO DECISION VARIABLES
    4. 5.4 USING OPTQUEST
  13. Chapter 6: Selecting Run Preferences
    1. 6.1 TRIALS
    2. 6.2 SAMPLING
    3. 6.3 SPEED
    4. 6.4 OPTIONS
    5. 6.5 STATISTICS
  14. Chapter 7: Net Present Value and Internal Rate of Return
    1. 7.1 DETERMINISTIC NPV AND IRR
    2. 7.2 SIMULATING NPV AND IRR
    3. 7.3 CAPITAL BUDGETING
    4. 7.4 CUSTOMER NET PRESENT VALUE
  15. Chapter 8: Modeling Financial Statements
    1. 8.1 DETERMINISTIC MODEL
    2. 8.2 TORNADO CHART AND SENSITIVITY ANALYSIS
    3. 8.3 CRYSTAL BALL SENSITIVITY CHART
    4. 8.4 CONCLUSION
  16. Chapter 9: Portfolio Models
    1. 9.1 SINGLE-PERIOD CRYSTAL BALL MODEL
    2. 9.2 SINGLE-PERIOD ANALYTICAL SOLUTION
    3. 9.3 MULTI-PERIOD CRYSTAL BALL MODEL
  17. Chapter 10: Value at Risk
    1. 10.1 VAR
    2. 10.2 SHORTCOMINGS OF VAR
    3. 10.3 CONDITIONAL VALUE AT RISK
  18. Chapter 11: Simulating Financial Time Series
    1. 11.1 WHITE NOISE
    2. 11.2 RANDOM WALK
    3. 11.3 AUTOCORRELATION
    4. 11.4 ADDITIVE RANDOM WALK WITH DRIFT
    5. 11.5 MULTIPLICATIVE RANDOM WALK MODEL
    6. 11.6 GEOMETRIC BROWNIAN MOTION MODEL
    7. 11.7 MEAN-REVERTING MODEL
  19. Chapter 12: Financial Options Financial Options Financial Modeling with Crystal Ball and Excel
    1. 12.1 TYPES OF OPTIONS
    2. 12.2 RISK-NEUTRAL PRICING AND THE BLACK-SCHOLES MODEL
    3. 12.3 PORTFOLIO INSURANCE
    4. 12.4 AMERICAN OPTION PRICING
    5. 12.5 EXOTIC OPTION PRICING
    6. 12.8 BULL SPREAD
    7. 12.7 PRINCIPAL-PROTECTED INSTRUMENT
  20. Chapter 13: Real Options
    1. 13.1 FINANCIAL OPTIONS AND REAL OPTIONS
    2. 13.2 APPLICATIONS OF REAL OPTIONS ANALYSIS
    3. 13.3 BLACK-SCHOLES REAL OPTIONS INSIGHTS
    4. 13.4 REAL OPTIONS VALUATION TOOL
  21. Chapter 14: Credit Risk
    1. 14.1 EXPECTED LOSS
    2. 14.2 CREDIT RISK SIMULATION MODEL
    3. 14.3 CONDITIONAL VALUE AT RISK
    4. 14.4 USING CVAR TO MANAGE CREDIT RISK
  22. Chapter 15: Construction Project Management
    1. 15.1 PROJECT DESCRIPTION
    2. 15.2 CHOOSING CONSTRUCTION METHODS
    3. 15.3 RISK ANALYSIS
    4. 15.4 STOCHASTIC OPTIMIZATION
  23. Chapter 16: Oil and Gas Exploration
    1. 16.1 WELL PROPERTIES
    2. 16.2 STATISTICAL MODELS
    3. 16.3 CONCLUSION
  24. Appendix A: Crystal Ball's Probability Distributions
    1. A.1 BERNOULLI
    2. A.2 BETA
    3. A.3 BETA PERT
    4. A.4 BINOMIAL
    5. A.5 CUSTOM
    6. A.6 DISCRETE UNIFORM
    7. A.7 EXPONENTIAL
    8. A.8 GAMMA
    9. A.9 GEOMETRIC
    10. A.10 HYPERGEOMETRIC
    11. A.11 LOGISTIC
    12. A.12 LOGNORMAL
    13. A.13 MAXIMUM EXTREME
    14. A.14 MINIMUM EXTREME
    15. A.15 NEGATIVE BINOMIAL
    16. A.16 NORMAL
    17. A.17 PARETO
    18. A.18 POISSON
    19. A.19 STUDENT'S T
    20. A.20 TRIANGULAR
    21. A.21 UNIFORM
    22. A.22 WEIBULL
    23. A.23 YES-NO
  25. Appendix B: Generating Assumption Values
    1. B.1 GENERATING RANDOM NUMBERS
    2. B.2 GENERATING RANDOM VARIATES
    3. B.3 LATIN HYPERCUBE SAMPLING
  26. Appendix C: Variance Reduction Techniques
    1. C.1 USING CRYSTAL BALL TO VALUE AN ASIAN OPTION
    2. C.2 ANTITHETIC VARIATES
    3. C.3 CONTROL VARIATES
    4. C.4 COMPARISON
    5. C.5 CONCLUSION
  27. Appendix D: About the Download
  28. Trialware
  29. Glossary
  30. References
  31. Index