Financial Modeling with the Monte Carlo Simulation

Most people use the Black-Scholes equation to get a price for an option but the Black-Scholes equation is used for European options, and is not valid for so-called exotic options. When various commodities are correlated, how do you consider this when trying to determine an outcome? If you have a choice of several investment strategies, and you have different investing criteria, which strategy would you pick? Understand how the Monte Carlo Simulation can help you in each of these instances. This course shows you how to make an Excel model of your problem, apply the simulation technique of varying inputs and monitoring one or many outputs, understand what the simulation results imply, and decide which strategy is best for you based on your risk-profile (e.g. risk-taker or risk-averse). Specifically, find out how much you can expect to gain or lose, and determine the likelihood of making or losing any amount you specify.

In this course, you will

• Examine possible model outcomes and their probability of occurrence using the @RISK simulation program, an add-in to Excel.

• Learn to model various financial applications and run a Monte Carlo Simulation to determine an optimal strategy.

• Explore the many functions and features of @RISK using financial examples.

• Examine option pricing.

• Find the value-at-risk (VaR) of a portfolio.

• Evaluate an investment strategy in the stock market.

• Investigate hedging with futures.

• Compare retirement investment strategies.

Prerequisites

Familiarity with Excel is required. Some knowledge of business statistics is helpful but not mandatory; essential concepts will be reviewed. No knowledge of simulation is assumed.

Who should attend

Financial analysts, portfolio managers, hedge fund managers, and anyone interested in constructing more adaptable models for analyzing and interpreting multiple outcomes.

Note: Bring your PC laptop with Microsoft Excel installed and a CD-ROM drive. Mac applications may not be as effective. Ensure the laptop permits the installation of new software. 

Bonus! Receive a three-month fully functional copy of @RISK, Version 5.7, and step-by-step documentation on how to construct the various spreadsheet models, run the simulation, and analyze the results.