Financial Modelling: Modelling Financial Instruments

Essential modelling techniques for yield curves, financial instruments and VaR analysis

Course overview

This is a practical hands-on course. Financial modelling is the result of combining a rigorous application of modelling best practice with an understanding of the relationships being modelled. Since participants may not be experts in technical areas such as option valuation or Value at Risk, individual tuition is available where necessary.

Participants on this course may also wish to attend Financial Modelling: Corporate Performance and Acquisitions.

Programme

Guidelines for building best practice models

• Structure for building in both rigour and flexibility

Traps in Excel functions

• Pitfalls for the unwary; Excel doesn’t always perform the calculation you expect

Sensitivity analysis

• Using data tables to communicate the range of outcomes - including the breaking point at
  which the decision would change - rather than a single point solution
• Calculating and illustrating market value sensitivity as assumptions are changed

Yield curves

• Understanding the relevant cash flows
• Converting between yield curves
• Quoting conventions and compounding periods

Bond valuations

• Constructing the model
• Understanding value sensitivity
• Understanding the key relationships between value, rates and maturity

Swap valuations

• Interest rate swap and cross currency swap valuation
• Sensitivity of values as key market drivers vary

Option valuations – Binomial model

• Constructing the model
• Demonstrating value sensitivity versus underlying, time, volatility
• Interpreting the results

Option valuations – Black Scholes model

• Constructing the model
• Demonstrating value sensitivity versus underlying, time, volatility
• Interpreting the results

Value at Risk analysis, diversification and correlation

• What diversification can achieve (and what it can’t)
• Pension fund analysis, interaction and mitigation of asset and liability risks
• Correlation, volatility and market shocks

What you will gain

Participants will gain a detailed understanding of how to structure models, the demands placed on them, and how they can be used as a basis for explaining findings to others. This will increase participants’ confidence in building and using models, leading to increased productivity and reduced error rates.

Who will benefit?

• All those who use spreadsheets to calculate with, model or explain financial instruments
• Professionals who want to increase the power, flexibility and transparency of their financial models
• Treasurers who need to deepen and broaden their understanding of financial relationships, drivers and sensitivities

Trainer

• Doug Williamson FCT. Ian Jakeways FCT.