Financial Modelling bridges the gap between theory and practice, equipping students with the knowledge and tools that are needed to solve real-world problems that are faced by investment banks, fund management companies and other financial institutions. The unit introduces students to the general principles of financial modelling, the use of financial data, as well as methodological tools that are useful for implementing a financial model, such as matrix operations, numerical optimisation, sensitivity analysis and simulation. These methods are applied to a wide range of applications in finance drawn from investment analysis, corporate finance, fixed income analysis, risk management and financial econometrics. The emphasis of the unit is on practical application of the theory through the extensive use of realistic case studies that students solve using Excel, VBA and, optionally, Python.
Financial Modelling builds on several units delivered in Teaching Block 1, including Asset Pricing and Fundamentals of Corporate Finance. In particular, it provides students with the tools to implement some of the theories and concepts that are covered in these units in a real-world setting through the extensive use of practical case studies. It also complements several of the optional units that are delivered in Teaching Block 2, such as Derivatives and Investment Management, by extending some of the material that is covered by these units to include models and techniques that are widely used in the finance industry.
After completing this unit successfully, students should be able to:
The unit covers both the general principles of financial modelling and the specific tools that prove to be useful to implement a financial model in practice. These techniques are illustrated with a wide range of applications in finance drawn from investment analysis, corporate finance, fixed income analysis, risk management and financial econometrics, including the estimation of the required returns on debt and equity, construction of optimal passive and active investment portfolios, forecasting the volatility of financial asset returns and the estimation of portfolio risk. The emphasis of the unit is on practical application of the theory, with lectures on each topic followed by in-depth practical classes in which students work through comprehensive realistic case studies using Excel, VBA and, optionally, Python.
The unit develops in students the ability to solve some of the practical challenges that they are likely to encounter in a career in the finance industry. In so doing students will acquire not only an understanding of the principles and practice of financial modelling, but also valuable transferable analytical skills such as the ability to analyse data and write a professional report, as well as proficiency in Excel, VBA and Python.
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