Extra
materials
For Financial Modeling (3rd edition)
Updated with new
materials: 11 July 2011
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This webpage is a guide to some additional materials to Financial
Modeling, 3rd edition (FM3).
Some of what is listed here will ultimately find its way into the next
edition of FM. All the materials are
preliminary and mistakes are inevitable.
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The materials are
password protected.
Please write me for a password.
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Financial
Engineering course: Videos of a
6-class course given during the summer of 2011 at Tel Aviv University. These will be posted
week-by-week on YouTube .
Payback
function: Yes, of course I know
that payback periods are passé and that NPV is better. But if you need an Excel payback function,
here it is. There are even two
versions: one computes a whole-year
payback period, the other a fractional year payback.
• Click here to
download
Adding a Personal.xlsb notebook: I wrote this to illustrate how I automate
Excel 2010’s Copy as Picture feature.
Very useful for copying in Excel and pasting as a picture (no link) in
Word;
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Click
here to download
Bugs
in Excel: There aren’t that many, but here are few I’ve noticed. Let me know if you’ve got more.
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Basic document
(updated 30 December 2010)
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Spreadsheet
Multi-variate Monte Carlo:
Chapters 22 and 22 of Financial Modeling treat one-parameter Monte
Carlo methods. These work well for
certain kinds of option problems, but what if there are several correlated
variables?
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Basic document: Multi-variate Monte Carlo
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Spreadsheet
Luciano Machain has a free Excel Add-In for Monte Carlo
simulations. [Not needed for the
Financial Modeling materials, but looks very nice.]
Computing the correlation matrix: An efficient way to compute the correlation
matrix.
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Basic
document
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Spreadsheet
Better
way to compute the global minimum variance portfolio
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Basic document
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Spreadsheet
Running
Data Table on a blank cell: Very
useful for doing random simulations
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Basic
document
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Spreadsheet
Skewness
and kurtosis: An important topic
not discussed in FM3. Ultimately I hope
to integrate this into a discussion of option pricing. In the meantime, this is a little technical
note.
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Basic
document
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Spreadsheet
Valuing employee stock options (ESO): Chapter 17 of FM3 implements the Hull-White
(2004) ESO valuation model, in which employees are assumed to early-exercise
their options if stock price is greater than a multiple of the option exercise
price. Mark Helmantel
has suggested an alternative model:
Employees exercise their ESOs if the option’s intrinsic value is greater
than a percentage of the Black-Scholes value.
The economic foundations of this model may be more appealing than those
of Hull-White. I explore an Excel
implementation of Helmantel’s idea. (update 30aug08)
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Basic document
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Spreadsheet
Closed-Form
Approximations for Spread Option Prices and Greeks: This outstanding student project done in the
framework of my Tel Aviv University Financial Engineering course implements a
paper by Li,
Deng, Zhou .
The project authors are Arik Leonidov and Netanel Elkayam.
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Powerpoint
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Spreadsheet