Risks are everywhere in the business world. Mastering Risk Modelling provides the busy financial manager with useful tips andpractical templates for assessing, applying and modelling risk and uncertainty in Excel. The book is designed specifically to be of help to you if you don't have time to start from scratch it will improve your abilities in Excel and give you a library of basic examples that you can use as a basis for further development. It covers: Review of model design Risk and uncertainty Credit risk Project finance Financial analysis Valuation Options Bonds Equities Value at risk Simulation This second edition contains brand new chapters: Revised models More material on credit risk modelling e.g. portfolios, bankruptcy models Shows dual 2003/2007 Excel key strokes More theory especially on statistics in Excel Basic statistics in Excel tools and methods Capacity to borrow and repay Finding optimum mix of risk and return Fixed income risk models Visual Basic approach

Table of Contents

Conventions Overview 1 Introduction Scope of the book Example model Objectives of risk modelling Summary 2 Review of model design Introduction Design objectives Common errors Excel features Formats Number formats Lines and borders Colour and patterns Specific colour for inputs and results Data validation Controls combo boxes and buttons Conditional formatting Use of functions and types of functions Add-ins for more functions Text and updated labels Recording a version number, author, etc. Using names Pasting a names table Comment cells Graphics Dynamic graphs to plot individual series Data tables Scenarios Spreadsheet auditing Summary 3 Risk and uncertainty Introduction Risk Uncertainty Response to risk Methods Summary 4 Project finance Introduction Requirements Advantages Risks Risk analysis Risk mitigation Financial model Inputs Sensitivity and cost of capital Construction, borrowing and output Accounting schedules Management analysis and summaries Summary 5 Simulation Introduction Building blocks Procedure Real estate example Summary 6 Financial analysis Introduction Process Environment Industry Financial statements Profit and loss Balance sheet Operating efficiency Profitability Financial structure Core ratios Market ratios Trend analysis Cash flow Forecasts Financial analysis Summary 7 Credit risk Cash flow Cover ratios Sustainability Beaver's model Bathory model Z scores Springate analysis Logit analysis H-Factor model Ratings agency Summary References 8 Valuation Introduction Inputs Cash flow Capital structure Valuation and returns Sensitivity analysis Management summary Summary 9 Bonds Introduction Bond prices Interest rates Yield Duration and maturity Convexity Comparison Summary 10 Options Introduction Options Options example Options hedging strategy Black Scholes Simulation options pricing Binomial model Summary 11 Real options Introduction Project Option to delay Option to abandon Option to expand Summary 12 Equities Introduction Historic data Returns summary Simulation Portfolio Summary References 13 Risk adjusted returns Introduction Economic capital Risk-adjusted return on capital (RAROC) Summary 14 Value at risk Introduction Single asset model Two assets Three asset portfolio Summary 15 Credit value at risk Introduction Portfolio approach Overview of components Single asset Two-bond portfolio Simulation Summary Appendix: software installation and licence Index