Financial modeling
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Computation of corporate finance problems, standard portfolio problems, option pricing and applications, and duration and immunization.
The central aim of all financial modeling is valuation under uncertainty: how do you estimate the value of a security when its future trajectory, or the trajectory of the other securities or economic variables it depends on, is unknown. Among other problems, financial modeling tackles the tasks of calculating cost of capital, risk modeling, real options, early exercise boundaries, and modeling the term structure of interest rates and credit spreads.
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Financial modeling is the computation of corporate finance problems, business planning and analysis valuations, financial securities portfolio solutions, option pricing, and various economic scenarios.
In business management, financial modeling is a fundamental tool in creating and managing business plans and in strategic planning and analysis. The most common types of business models are forecasting cash flows, capital budgeting, and capacity utilization analysis. Such models are normally created with a computer spreadsheet program, which provides an effective way to perform what-if analysis (a method of recalculating the results when changing one or more assumption inputs). This empowers management to make more educated business decisions.
In economics and in the securities market in particular, the central aim of financial modeling is valuation under uncertainty: how do you estimate the value of a security when its future trajectory, or the trajectory of the other securities or economic variables it depends on, is unknown. Among other problems, financial modeling tackles the tasks of calculating cost of capital, risk modeling, real options, early exercise boundaries, and modeling the term structure of interest rates and credit spreads.
