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Financial modeling is the task of building an abstract representation (a
model A model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a measure. Models c ...
) of a real world financial situation. This is a mathematical model designed to represent (a simplified version of) the performance of a financial asset or portfolio of a business, project, or any other investment. Typically, then, financial modeling is understood to mean an exercise in either asset pricing or corporate finance, of a quantitative nature. It is about translating a set of hypotheses about the behavior of markets or agents into numerical predictions. At the same time, "financial modeling" is a general term that means different things to different users; the reference usually relates either to accounting and corporate finance applications or to
quantitative finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling of financial markets. In general, there exist two separate branches of finance that require ...
applications. While there has been some debate in the industry as to the nature of financial modeling—whether it is a
tradecraft Tradecraft, within the intelligence community, refers to the techniques, methods and technologies used in modern espionage (spying) and generally, as part of the activity of intelligence assessment. This includes general topics or techniques ( ...
, such as welding, or a
science Science is a systematic endeavor that Scientific method, builds and organizes knowledge in the form of Testability, testable explanations and predictions about the universe. Science may be as old as the human species, and some of the earli ...
—the task of financial modeling has been gaining acceptance and rigor over the years.


Accounting

In corporate finance and the accounting profession, ''financial modeling'' typically entails financial statement forecasting; usually the preparation of detailed company-specific models used for decision making purposes and financial analysis. Applications include: *
Business valuation Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing t ...
and
stock valuation In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit fr ...
- especially via discounted cash flow, but including other valuation approaches *
Scenario planning Scenario planning, scenario thinking, scenario analysis, scenario prediction and the scenario method all describe a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and gener ...
and management decision making ("what is"; "what if"; "what has to be done" §39 "Corporate Planning Models". See also, §294 "Simulation Model".) *
Capital budgeting Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects ...
, including cost of capital (i.e. WACC) calculations *
Financial statement analysis Financial statement analysis (or just financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions to earn income in future. These statements include the income statement, balanc ...
/
ratio analysis In mathematics, a ratio shows how many times one number contains another. For example, if there are eight oranges and six lemons in a bowl of fruit, then the ratio of oranges to lemons is eight to six (that is, 8:6, which is equivalent to the ...
(including of operating- and
finance lease A finance lease (also known as a capital lease or a sales lease) is a type of lease in which a finance company is typically the legal owner of the asset for the duration of the lease, while the lessee not only has operating control over the asset, b ...
s, and R&D) *Revenue related:
forecasting Forecasting is the process of making predictions based on past and present data. Later these can be compared (resolved) against what happens. For example, a company might estimate their revenue in the next year, then compare it against the actual ...
,
analysis Analysis ( : analyses) is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (3 ...
*
Project finance model A project finance model is a specialized financial model, the purpose of which is to assess the economic feasibility of the project in question. The model's output can also be used in structuring, or "sculpting", the project finance deal. The co ...
ing *
Cash flow forecasting Cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position; the cash flow forecast is typically based on anticipated payments and receivables. See Financial forecast for general discussion ...
*Credit decisioning:
Credit analysis Credit analysis is the method by which one calculates the creditworthiness of a business or organization. In other words, It is the evaluation of the ability of a company to honor its financial obligations. The audited financial statements of a lar ...
,
Consumer credit risk ''The following article is based on UK market, other countries may differ.'' Consumer credit risk (also retail credit risk) is the risk of loss due to a consumer's failure or inability to repay ( default) on a consumer credit product, such as a mo ...
; impairment- and
provision Provision(s) may refer to: * Provision (accounting), a term for liability in accounting * Provision (contracting), a term for a procurement condition * ''Provision'' (album), an album by Scritti Politti * A term for the distribution, storing an ...
-modeling * Working capital- and
treasury management Treasury management (or treasury operations) includes management of an enterprise's holdings, with the ultimate goal of managing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a fi ...
;
asset and liability management Asset and liability management (often abbreviated ALM) is the practice of managing financial risks that arise due to mismatches between the assets and liabilities as part of an investment strategy in financial accounting. ALM sits between risk ...
*Management accounting:
Activity-based costing Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Therefore, this model assigns more in ...
, Profitability analysis, Cost analysis,
Whole-life cost Whole-life cost is the total cost of ownership over the life of an asset. The concept is also known as life-cycle cost (LCC) or lifetime cost, and is commonly referred to as "cradle to grave" or "womb to tomb" costs. Costs considered include the f ...
To generalize as to the nature of these models: firstly, as they are built around
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s, calculations and outputs are monthly, quarterly or annual; secondly, the inputs take the form of "assumptions", where the analyst ''specifies'' the values that will apply in each period for external / global variables ( exchange rates,
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
percentage, etc....; may be thought of as the model ''
parameter A parameter (), generally, is any characteristic that can help in defining or classifying a particular system (meaning an event, project, object, situation, etc.). That is, a parameter is an element of a system that is useful, or critical, when ...
s''), and for internal / company specific ''variables'' ( wages,
unit cost The unit cost is the price incurred by a company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a com ...
s, etc....). Correspondingly, both characteristics are reflected (at least implicitly) in the mathematical form of these models: firstly, the models are in discrete time; secondly, they are deterministic. For discussion of the issues that may arise, see below; for discussion as to more sophisticated approaches sometimes employed, see and . Modelers are often designated "
financial analyst A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job. The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, ...
" (and are sometimes referred to (
tongue in cheek The idiom tongue-in-cheek refers to a humorous or sarcastic statement expressed in a serious manner. History The phrase originally expressed contempt, but by 1842 had acquired its modern meaning. Early users of the phrase include Sir Walter Scott ...
) as "number crunchers"). Typically, the modeler will have completed an
MBA A Master of Business Administration (MBA; also Master's in Business Administration) is a postgraduate degree focused on business administration. The core courses in an MBA program cover various areas of business administration such as accounti ...
or MSF with (optional) coursework in "financial modeling". Accounting qualifications and finance certifications such as the CIIA and CFA generally do not provide direct or explicit training in modeling. At the same time, numerous commercial training courses are offered, both through universities and privately. For the components and steps of business modeling here, see ; see also for further discussion and considerations. Although purpose-built
business software Business software (or a business application) is any software or set of computer programs used by business users to perform various business functions. These business applications are used to increase productivity, measure productivity, and perf ...
does exist (see also
Fundamental Analysis Software Fundamental analysis software automates analysis that supports fundamental analysts in their review of a company's financial statements and valuation. Features The following are the most common features of fundamental analysis applications. Bac ...
), the vast proportion of the market is
spreadsheet A spreadsheet is a computer application for computation, organization, analysis and storage of data in tabular form. Spreadsheets were developed as computerized analogs of paper accounting worksheets. The program operates on data entered in c ...
-based; this is largely since the models are almost always company-specific. Also, analysts will each have their own criteria and methods for financial modeling.
Microsoft Excel Microsoft Excel is a spreadsheet developed by Microsoft for Windows, macOS, Android and iOS. It features calculation or computation capabilities, graphing tools, pivot tables, and a macro programming language called Visual Basic for App ...
now has by far the dominant position, having overtaken
Lotus 1-2-3 Lotus 1-2-3 is a discontinued spreadsheet program from Lotus Software (later part of IBM). It was the first killer application of the IBM PC, was hugely popular in the 1980s, and significantly contributed to the success of IBM PC-compatibles i ...
in the 1990s. Spreadsheet-based modelling can have its own problems, and several standardizations and "
best practice A best practice is a method or technique that has been generally accepted as superior to other known alternatives because it often produces results that are superior to those achieved by other means or because it has become a standard way of doing ...
s" have been proposed.Best Practice
European Spreadsheet Risks Interest Group
"Spreadsheet risk" is increasingly studied and managed; see
model audit A model audit is the colloquial term for the tasks performed when conducting due diligence on a financial model, in order to eliminate spreadsheet error. Model audits are sometimes referred to as model reviews, primarily to avoid confusion with fin ...
. One critique here, is that model ''outputs'', i.e.
line items Line most often refers to: * Line (geometry), object with zero thickness and curvature that stretches to infinity * Telephone line, a single-user circuit on a telephone communication system Line, lines, The Line, or LINE may also refer to: Arts ...
, often inhere "unrealistic implicit assumptions" and "internal inconsistencies". (For example, a forecast for growth in revenue but without corresponding increases in
working capital Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...
,
fixed assets A fixed asset, also known as long-lived assets or property, plant and equipment (PP&E), is a term used in accounting for assets and property that may not easily be converted into cash. Fixed assets are different from current assets, such as ...
and the associated financing, may imbed unrealistic assumptions about
asset turnover Asset turnover (ATO), total asset turnover, or asset turns is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company. Asset turnover is considered to be an Activity ...
, debt level and/or equity financing. See .) What is required, but often lacking, is that all key elements are explicitly and consistently forecasted. Related to this, is that modellers often additionally "fail to identify crucial assumptions" relating to ''inputs'', "and to explore what can go wrong". Here, in general, modellers "use point values and simple arithmetic instead of probability distributions and statistical measures" — i.e., as mentioned, the problems are treated as deterministic in nature — and thus calculate a single value for the asset or project, but without providing information on the range, variance and sensitivity of outcomes; see . A further, more general critique relates to the lack of basic
computer programming Computer programming is the process of performing a particular computation (or more generally, accomplishing a specific computing result), usually by designing and building an executable computer program. Programming involves tasks such as anal ...
concepts amongst modelers, with the result that their models are often poorly structured, and difficult to maintain. (Serious criticism is also directed at the nature of budgeting, and its impact on the organization; see .)


Quantitative finance

In
quantitative finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling of financial markets. In general, there exist two separate branches of finance that require ...
, ''financial modeling'' entails the development of a sophisticated mathematical model. Models here deal with asset prices, market movements, portfolio returns and the like. A general distinction is between: "quantitative financial management", models of the financial situation of a large, complex firm; "quantitative asset pricing", models of the returns of different stocks; "
financial engineering Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathem ...
", models of the price or returns of derivative securities; "quantitative corporate finance", models of the firm's financial decisions. Relatedly, applications include: *
Option pricing In finance, a price (premium) is paid or received for purchasing or selling options. This article discusses the calculation of this premium in general. For further detail, see: for discussion of the mathematics; Financial engineering for the imple ...
and calculation of their "Greeks" ( accommodating
volatility surface Volatility smiles are implied volatility patterns that arise in pricing financial options. It is a parameter (implied volatility) that is needed to be modified for the Black–Scholes formula to fit market prices. In particular for a given expi ...
s - via
local Local may refer to: Geography and transportation * Local (train), a train serving local traffic demand * Local, Missouri, a community in the United States * Local government, a form of public administration, usually the lowest tier of administrat ...
/
stochastic volatility In statistics, stochastic volatility models are those in which the variance of a stochastic process is itself randomly distributed. They are used in the field of mathematical finance to evaluate derivative securities, such as options. The name d ...
models - and multi-curves) *Other derivatives, especially
interest rate derivative In finance, an interest rate derivative (IRD) is a derivative whose payments are determined through calculation techniques where the underlying benchmark product is an interest rate, or set of different interest rates. There are a multitude of diff ...
s,
credit derivative In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the '' credit risk''"The Economist ''Passing on the risks'' 2 November 1996 or the risk of an event of default of a co ...
s and
exotic derivatives An exotic derivative, in finance, is a derivative which is more complex than commonly traded "vanilla" products. This complexity usually relates to determination of payoff; see option style. The category may also include derivatives with a non- ...
*Modeling the term structure of
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
s (
bootstrapping In general, bootstrapping usually refers to a self-starting process that is supposed to continue or grow without external input. Etymology Tall boots may have a tab, loop or handle at the top known as a bootstrap, allowing one to use fingers ...
/ multi-curves,
short-rate model A short-rate model, in the context of interest rate derivatives, is a mathematical model that describes the future evolution of interest rates by describing the future evolution of the short rate, usually written r_t \,. The short rate Under a s ...
s, HJM framework) and any related
credit spread Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt ...
*
Credit valuation adjustment Credit valuation adjustments (CVAs) are accounting adjustments made to reserve a portion of profits on uncollateralized financial derivatives. They are charged by a bank to a risky (capable of default) counterparty to compensate the bank for taking ...
, CVA, as well as the various
XVA An X-Value Adjustment (XVA, xVA) is an umbrella term referring to a number of different “valuation adjustments” that banks must make when assessing the value of derivative contracts that they have entered into. The purpose of these is twofold: ...
*
Credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
,
counterparty credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
, and
regulatory capital A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ...
: EAD, PD, LGD, PFE, EE * Structured product design and manufacture *
Portfolio optimization Portfolio optimization is the process of selecting the best portfolio (asset distribution), out of the set of all portfolios being considered, according to some objective. The objective typically maximizes factors such as expected return, and minimi ...
and
Quantitative investing Quantitative analysis is the use of mathematical and statistical methods in finance and investment management. Those working in the field are quantitative analysts (quants). Quants tend to specialize in specific areas which may include derivative ...
more generally; see further re optimization methods employed. *
Financial risk modeling Financial risk modeling is the use of formal mathematical and econometric techniques to measure, monitor and control the market risk, credit risk, and operational risk on a firm's balance sheet, on a bank's trading book, or re a fund manager ...
:
value at risk Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by ...
( parametric- and / or historical, CVaR, EVT), stress testing, "sensitivities" analysis *Corporate finance applications: See David Shimko (2009)
Quantifying Corporate Financial Risk
archived 2010-07-17.
cash flow analytics, corporate financing activity prediction problems, and risk analysis in capital investment *
Credit scoring A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bu ...
and
provisioning In telecommunication, provisioning involves the process of preparing and equipping a network to allow it to provide new services to its users. In National Security/Emergency Preparedness telecommunications services, ''"provisioning"'' equates to ...
; Credit scorecards and *
Real options Real options valuation, also often termed real options analysis,Adam Borison (Stanford University)''Real Options Analysis: Where are the Emperor's Clothes?'' (ROV or ROA) applies option valuation techniques to capital budgeting decisions.Campbe ...
* Actuarial applications: Dynamic financial analysis (DFA), UIBFM, investment modeling These problems are generally stochastic and
continuous Continuity or continuous may refer to: Mathematics * Continuity (mathematics), the opposing concept to discreteness; common examples include ** Continuous probability distribution or random variable in probability and statistics ** Continuous ...
in nature, and models here thus require complex algorithms, entailing computer simulation, advanced
numerical methods Numerical analysis is the study of algorithms that use numerical approximation (as opposed to symbolic manipulations) for the problems of mathematical analysis (as distinguished from discrete mathematics). It is the study of numerical methods th ...
(such as
numerical differential equations Numerical may refer to: * Number * Numerical digit * Numerical analysis Numerical analysis is the study of algorithms that use numerical approximation (as opposed to symbolic manipulations) for the problems of mathematical analysis (as distin ...
,
numerical linear algebra Numerical linear algebra, sometimes called applied linear algebra, is the study of how matrix operations can be used to create computer algorithms which efficiently and accurately provide approximate answers to questions in continuous mathematic ...
,
dynamic programming Dynamic programming is both a mathematical optimization method and a computer programming method. The method was developed by Richard Bellman in the 1950s and has found applications in numerous fields, from aerospace engineering to economics. ...
) and/or the development of optimization models. The general nature of these problems is discussed under , while specific techniques are listed under . For further discussion here see also:
Brownian model of financial markets The Brownian motion models for financial markets are based on the work of Robert C. Merton and Paul A. Samuelson, as extensions to the one-period market models of Harold Markowitz and William F. Sharpe, and are concerned with defining the concept ...
;
Martingale pricing Martingale pricing is a pricing approach based on the notions of martingale and risk neutrality. The martingale pricing approach is a cornerstone of modern quantitative finance and can be applied to a variety of derivatives contracts, e.g. options ...
;
Financial models with long-tailed distributions and volatility clustering Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
;
Extreme value theory Extreme value theory or extreme value analysis (EVA) is a branch of statistics dealing with the extreme deviations from the median of probability distributions. It seeks to assess, from a given ordered sample of a given random variable, the pr ...
;
Historical simulation (finance) Historical simulation in finance's value at risk (VaR) analysis is a procedure for predicting the value at risk by 'simulating' or constructing the cumulative distribution function (CDF) of assets returns over time. Unlike parametric VaR models, ...
. Modellers are generally referred to as "quants", i.e.
quantitative analyst Quantitative may refer to: * Quantitative research, scientific investigation of quantitative properties * Quantitative analysis (disambiguation) * Quantitative verse, a metrical system in poetry * Statistics, also known as quantitative analysis ...
s, and typically have advanced (
Ph.D. A Doctor of Philosophy (PhD, Ph.D., or DPhil; Latin: or ') is the most common degree at the highest academic level awarded following a course of study. PhDs are awarded for programs across the whole breadth of academic fields. Because it is ...
level) backgrounds in quantitative disciplines such as statistics,
physics Physics is the natural science that studies matter, its fundamental constituents, its motion and behavior through space and time, and the related entities of energy and force. "Physical science is that department of knowledge which r ...
,
engineering Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad range of more speciali ...
,
computer science Computer science is the study of computation, automation, and information. Computer science spans theoretical disciplines (such as algorithms, theory of computation, information theory, and automation) to practical disciplines (includi ...
, mathematics or
operations research Operations research ( en-GB, operational research) (U.S. Air Force Specialty Code: Operations Analysis), often shortened to the initialism OR, is a discipline that deals with the development and application of analytical methods to improve decis ...
. Alternatively, or in addition to their quantitative background, they complete a finance masters with a quantitative orientation, Mark S. Joshi
''On Becoming a Quant''
.
such as the Master of Quantitative Finance, or the more specialized Master of Computational Finance or
Master of Financial Engineering Master or masters may refer to: Ranks or titles * Ascended master, a term used in the Theosophical religious tradition to refer to spiritually enlightened beings who in past incarnations were ordinary humans * Grandmaster (chess), National Maste ...
; the CQF certificate is increasingly common. Although spreadsheets are widely used here also (almost always requiring extensive VBA); custom
C++ C++ (pronounced "C plus plus") is a high-level general-purpose programming language created by Danish computer scientist Bjarne Stroustrup as an extension of the C programming language, or "C with Classes". The language has expanded significan ...
, Fortran or
Python Python may refer to: Snakes * Pythonidae, a family of nonvenomous snakes found in Africa, Asia, and Australia ** ''Python'' (genus), a genus of Pythonidae found in Africa and Asia * Python (mythology), a mythical serpent Computing * Python (pro ...
, or numerical-analysis software such as
MATLAB MATLAB (an abbreviation of "MATrix LABoratory") is a proprietary multi-paradigm programming language and numeric computing environment developed by MathWorks. MATLAB allows matrix manipulations, plotting of functions and data, implementa ...
, are often preferred, particularly where stability or speed is a concern. MATLAB is often used at the research or prototyping stage because of its intuitive programming, graphical and debugging tools, but C++/Fortran are preferred for conceptually simple but high computational-cost applications where MATLAB is too slow; Python is increasingly used due to its simplicity, and large standard library / available applications, including QuantLib. Additionally, for many (of the standard) derivative and portfolio applications,
commercial software Commercial software, or seldom payware, is a computer software that is produced for sale or that serves commercial purposes. Commercial software can be proprietary software or free and open-source software. Background and challenge While sof ...
is available, and the choice as to whether the model is to be developed in-house, or whether existing products are to be deployed, will depend on the problem in question. See . The complexity of these models may result in incorrect pricing or hedging or both. This ''
Model risk In finance, model risk is the risk of loss resulting from using insufficiently accurate models to make decisions, originally and frequently in the context of valuing financial securities. However, model risk is more and more prevalent in activitie ...
'' is the subject of ongoing research by finance academics, and is a topic of great, and growing, interest in the risk management arena. Criticism of the discipline (often preceding the
financial crisis of 2007–08 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...
by several years) emphasizes the differences between the mathematical and physical sciences, and finance, and the resultant caution to be applied by modelers, and by traders and risk managers using their models. Notable here are
Emanuel Derman Emanuel Derman (born 1945) is a South African-born academic, businessman and writer. He is best known as a quantitative analyst, and author of the book ''My Life as a Quant: Reflections on Physics and Finance''. He is a co-author of Black–Derm ...
and
Paul Wilmott Paul Wilmott (born 8 November 1959) is an English researcher, consultant and lecturer in quantitative finance.Financial Modelers' Manifesto The Financial Modelers' Manifesto was a proposal for more responsibility in risk management and quantitative finance written by financial engineers Emanuel Derman and Paul Wilmott. The manifesto includes a Modelers' Hippocratic Oath. The structur ...
''. Some go further and question whether the mathematical- and
statistical modeling A statistical model is a mathematical model that embodies a set of statistical assumptions concerning the generation of sample data (and similar data from a larger population). A statistical model represents, often in considerably idealized form, ...
techniques usually applied to finance are at all appropriate (see the assumptions made for options and for portfolios). In fact, these may go so far as to question the "empirical and scientific validity... of modern financial theory". Notable here are
Nassim Taleb Nassim Nicholas Taleb (; alternatively ''Nessim ''or'' Nissim''; born 12 September 1960) is a Lebanese-American essayist, mathematical statistician, former option trader, risk analyst, and aphorist whose work concerns problems of randomness, ...
and Benoit Mandelbrot. See also , and .


Competitive modeling

Several financial modeling competitions exist, emphasizing speed and accuracy in modeling. The
Microsoft Microsoft Corporation is an American multinational technology corporation producing computer software, consumer electronics, personal computers, and related services headquartered at the Microsoft Redmond campus located in Redmond, Washin ...
-sponsored ModelOff Financial Modeling World Championships were held annually from 2012 to 2019, with competitions throughout the year and a finals championship in New York or London. After its end in 2020, several other modeling championships have been started, including the
Financial Modeling World Cup The Financial Modeling World Cup (FMWC) is a financial modeling competition. The competition was started in September 2020. Contestants solve real-life financial problems, in the form of case studies, by building financial models in Microsoft Exce ...
and
Microsoft Excel Collegiate Challenge The Microsoft Excel Collegiate Challenge (MECC) is a Microsoft Excel esports competition, sponsored by Microsoft. Started in 2021, the competition is a spin-off of the Financial Modeling World Cup for college students. Contestants solve problems, ...
, also sponsored by
Microsoft Microsoft Corporation is an American multinational technology corporation producing computer software, consumer electronics, personal computers, and related services headquartered at the Microsoft Redmond campus located in Redmond, Washin ...
.


See also

*
Asset pricing model In financial economics, asset pricing refers to a formal treatment and development of two main pricing principles, outlined below, together with the resultant models. There have been many models developed for different situations, but correspon ...
*
Economic model In economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework desi ...
*
Financial engineering Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathem ...
*
Financial forecast A financial forecast is an estimate of future financial outcomes for a company or project, usually applied in budgeting, capital budgeting and / or valuation; see . Depending on context the term may also refer to listed company (quarterly) ea ...
*
Financial Modelers' Manifesto The Financial Modelers' Manifesto was a proposal for more responsibility in risk management and quantitative finance written by financial engineers Emanuel Derman and Paul Wilmott. The manifesto includes a Modelers' Hippocratic Oath. The structur ...
*
Financial models with long-tailed distributions and volatility clustering Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
*
Financial planning In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans. This often includes a bu ...
*
Integrated business planning Integrated business planning (IBP) is a process for translating desired business outcomes into financial and operational resource requirements, with the overarching objective of maximizing profit and / or cash flow, while minimizing risk. The bu ...
*
Model audit A model audit is the colloquial term for the tasks performed when conducting due diligence on a financial model, in order to eliminate spreadsheet error. Model audits are sometimes referred to as model reviews, primarily to avoid confusion with fin ...
* Modeling and analysis of financial markets * * *
Profit model The profit model is the linear, deterministic algebraic model used implicitly by most cost accountants. Starting with, profit equals sales minus costs, it provides a structure for modeling cost elements such as materials, losses, multi-products, ...
* Return on modeling effort


References


Bibliography

General * * * * * * * * Corporate finance * * * * * * * * * * * * * * * * * Quantitative finance * * * * * * * * * * * * * * * * * * * * * * {{Corporate finance and investment banking Financial models Actuarial science Mathematical finance Corporate finance Computational fields of study