Financial Simulation Modeling in Excel: A Step-by-Step Guide, + Website


As simulation techniques become more prominent within the financial community, a thorough understanding of the theory behind, and implementation of, those techniques is critical for those involved in portfolio management, risk management, pricing, and other essential financial activities.

Created by the expert author team of Keith Allman, Josh Laurito, and Michael Loh, Financial Simulation Modeling in Excel contains valuable theoretical insights as well as practical exercises that will help you transform financial concepts into dynamic, usable models. And because simulation has its place in many different parts of finance, this well-rounded resource takes you step by step through the process of creating multiple, smaller models—using Microsoft® Excel® and VBA—as opposed to a single unified model.

Each section begins with a discussion of theory—with enough background and mathematical formulas provided to reinforce the concept covered—and then moves on to a Model Builder exercise where the theory is transferred to an application in Microsoft® Excel®. Along the way, this accessible guide:

  • Works through random number generation, explains Brownian motion, and explores correlation between variables with specific examples

  • Takes you through simulating interest rate paths to price bonds

  • Creates a corporate default simulation based on structural and reduced form models

  • Provides a thorough look at simulating pools of assets

  • Addresses data deficiencies and how to manage data as it relates to a simulation

Complete with a companion website that contains information including Model Builder files, this book is an essential guide—for both seasoned professionals and those new to the world of financial simulation modeling—to understanding the intricacies of this discipline and excelling at it.

Keith A. Allman is an investment manager at Bamboo Finance, a private equity fund that invests in for-profit, commercially viable companies that provide a good or service that beneficially impacts the lives of low-income individuals. Previously, he was the director of analytics and modeling at Pearl Street Capital Group. Allman also founded Enstruct, which services clients worldwide in capital markets and equity valuation, distressed valuation, and quantitative-based training. He is the author of the Wiley titles Corporate Valuation Modeling, Modeling Structured Finance Cash Flows with Microsoft® Excel®, and Reverse Engineering Deals on Wall Street with Microsoft® Excel®. Allman holds bachelor degrees from UCLA and a master's degree from Columbia University.

Josh Laurito, CFA, is a co-founder and Principal of Lumesis, a leading provider of credit analysis software and solutions to the municipal finance market. In addition, he directs corporate modeling for Hexagon Securities, a boutique merchant bank that advises and invests in banks and specialty finance companies.

MichaelL Loh currently works for Tech-X Corporation where he is actively engaged in complex data management and high-performance computing using accelerated hardware. Prior to Tech-X, Loh developed and implemented financial models at RangeMark Financial Services



About the Authors.

Chapters 1: Introduction.

Chapters 2: Random Numbers, Distributions, and Basic Simulation Set Up.

Chapters 3: Correlation.

Chapters 4: Option Pricing.

Chapters 5: Corporate Default Simulation.

Chapters 6: Simulating Pools of Assets.

Chapters 7: Dealing with Data Deficiencies and Other Issues.

Chapters 8: Advanced Topics and Further Reading.

Appendix I: Partial Differential Equation.

Appendix II: Newton-Raphson Method.

List of Model Builder Files Available on Website.