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2015/2016  KAN-CCMVI2017U  Graduate Financial Modelling

English Title
Graduate Financial Modelling

Course information
Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration Summer
Start time of the course Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 100
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Course instructor - Dr. Hassan Tanha, Hassan.tanha@vu.edu.au
    Sven Bislev - Department of Intercultural Communication and Management (ICM)
In case of any academic questions related to the course, please contact the course instructor or the academic director, Sven Bislev at sb.ikl@cbs.dk
Main academic disciplines
  • Finance
  • Statistics and quantitative methods
  • Economics
Last updated on 09-06-2016
Learning objectives
To achieve the grade 12, students should meet the following learning objectives with no or only minor mistakes or errors:
  • Technical aspects of advanced Excel: Master VBA on a basic level. Learn to use Data tables to do sensitivity analysis, incorporate the Excel Personal Notebook in your work to make your work more efficient.
  • Understand the use of random number generation for financial simulations. Learn to simulate uniform and normal distributions and to generate correlated random numbers that can be used in finance.
  • Understand log-normality of financial data and how to use this in Monte Carlo simulations of investment performance.
  • Implement standard option models: the Black-Scholes model and the binomial model.
  • Simulate option models using Monte Carlo methods. Special emphasis will be placed on path-dependent and exotic options.
  • Download stock data, calculate the var-cov matrix and Find optimal portfolios.
Course prerequisites
At least two previous courses in finance (Introduction to finance or corporate finance and an investments course) plus a basic knowledge of Excel (advanced concepts will be covered in class).
Examination
Graduate financial modeling:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Summer, Ordinary exam: 1-5 August 2016
Retake exam: Within two months from the ordinary exam.
Aids allowed to bring to the exam Open book: all written and electronic aids, including internet access
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Retake exam: 4 hour written exam, as the ordinary, but with at new exam question.
Course content and structure

This course focuses on two aspects of investment theory: 1) simulation and Monte Carlo techniques in financial markets and 2) portfolio theory. We will use Excel throughout. The course is numerically intensive and requires a considerable amount of student input. It will be taught in a computer lab.The course topics include random number generation, financial analysis under uncertainty, savings and consumptions
problems, Monte Carlo simulation to compute financial values of complex assets, option pricing with Monte Carlo
(Black-Scholes, binomial model, structured securities, exotic options).
The learning objectives of this course are to deepen the student’s understanding of advanced financial models under
uncertainty. We will emphasize numerical proficiency in Excel, the most widely used computational tool in finance. The
combination of Excel as a numerical tool to implement financial modeling is a winning combination.

 

For the Preliminary Assignment there are two readings to prepare for Class 1. A chapter from the course textbook Financial Modeling covering Data Tables (Excel’s way of doing sensitivity analysis). 2. A short reading on the basics of VBA and Excel’s personal notebook. Both of these readings will be discussed thoroughly in the first class. For the feedback activity students will have a short quiz during Class 6.

 

Class 1: Preliminary Assignment; Simple VBA, Data Tables, Excel Personal Notebook (Pre-reading, Ch 31)


Class 2: Random numbers (FM4, Chapter 24)


Class 3: Introduction to Monte Carlo (FM4 Chapter 25)


Class 4: Lognormality — generating price simulations (FM4 Chapter 26) + Monte Carlo for investments (FM4, Chapter 27)


Class 5: Introduction to options (FM4, Chapter 15) + Black-Scholes model and structured securities (FM4, Chapter 17)


Class 6: Feedback activity

 

Class 7: The binomial model (FM4 Chapter 16)


Class 8: Simulating option strategies (FM4 Chapter 29) +Monte Carlo for options (FM4 Chapter 30)


Class 9: Introduction to portfolio theory and risk diversification (FM4 Chapter 8)


Class 10: Calculating the Var-Cov Matrix (FM4 Chapter 10) + Calculating Efficient portfolios (FM4 Chapter 9)


Class 11: Black-Litterman Model (FM4 Chapter 13) + comprehensive review.

 
Teaching methods
I teach interactively—a combination of lectures, theory of finance, Excel. I expect students to follow along with my lectures, implementing in Excel the models that are explained in class. Homework is an important part of this process-the student must learn to independently implement the financial models.
Student workload
Preliminary assignment 10 hours
Classroom attendance 33 hours
Preparation 144 hours
Feedback activity 7 hours
Examination 12 hours
Further Information

Preliminary Assignment: To help students get maximum value from ISUP courses, instructors provide a reading or a small number of readings or video clips to be read or viewed before the start of classes with a related task scheduled for class 1 in order to 'jump-start' the learning process.

 

Feedback Activity: A feedback activitity defined by the course instructor will take place app. half-way through the course.
 

The timetable is available on http://www.cbs.dk/files/cbs.dk/isup_timetable_2016_updated.pdf
Expected literature

PRIMARY LITERATURE (MUST-HAVE BOOKS):

 

Simon Benninga

Financial Modeling

ISBN 0262027283

The MIT Press

Edition/year 2014
Last updated on 09-06-2016