Financial Modeling

Professor Simon Benninga’s Financial Modeling, Forth Edition (uses Excel) is the single most valuable finance book ever published for students and professionals and offers an outstanding reference and textbook for practitioners of applied finance. Following independent readings or coursework in Corporate Finance and Investments Financial Modeling, Forth Edition (FM4) is your next best investment for coal-face mechanical understandings of the principals and methods of actual financial calculation on a sophisticated level. For further information, please use the "Look Inside" feature and examine the Table of Contents carefully, as I will emphasize selected portions. First, caveats: Benninga characterizes himself as an author of a “cookbook” and I only partially agree. Like the very best cookbooks by brilliant chef teachers such as Julia Child, FM4 is a pedagogical masterpiece because it is excellent for “learning by doing” that makes concepts real to practitioners and students. "Cookbook" metaphors are therefore too strong and do not do this work justice, for FM4 is not a mere collection of recipes but rather topical introduction, explanation, and then direct technique. If we can make a comparison with a "cookbook" then FM4 falls somewhere between "The Joy of Cooking" and "Mastering the Art of French Cooking." "Joy" combines chapters on technique, ingredients, and tools with dense pages of endless recipes, whereas "Mastering" emphasizes technique and a few well-selected recipes. In addition, a caveat is that the work does explicitly use Excel for explanations. Increasingly in Masters of Science in Finance coursework models are directly coded in Matlab or the children of C or R, or at banks’ or financial service firms’ proprietary systems are used. The use of the ubiquitous Excel may at first appear to trivialize what is accomplished in this work, but it ironically does not. Certainly in a small shop Excel will be the first tool, and this work’s models will therefore be directly useful. In large more complex shops where proprietary or internal systems are custom platforms, the exact same things made explicit and simple in this book with Excel will be occurring under the hood of that enormous machine. Therefore: if you work through this book and understand the models here that are executed in Excel you will understand what is going on in the silicon beast you are attached to on a proprietary trading desk. Under the hood is this same stuff, just on a different platform. Benninga's FM4 is explicitly for those who must make financial decisions using models. There are further specialist texts in topics covered here (credit modeling, portfolio construction, option pricing, etc.), but the models in FM4 are the first advanced models applied to leases, loans, bonds, options, and equity portfolios. Master these and then specialized texts are easier to digest. What is new? Benninga has chosen to start the work with an introduction to the tools used repeatedly throughout the text: data tables, getformula, etc. Basic Financial Calculations follows, and then the meaty chapters of previous editions on corporate valuation, WACC, valuation, pro-forma modeling, leasing, portfolios, efficient portfolios, variance-covariance matrix, beta estimation and the security market line, constrained portfolios, the Black-Litterman approach to portfolio optimization, and Monte Carlo methods and applications to option pricing and other topics, and the previous 2nd and 3rd edition's small chapter on using array functions and formulas has been expanded. The portion on data downloads from YAHOO is also welcome, especially for those on a budget. Sadly, the stand-alone chapter on bank valuation from the 3rd edition is now missing. There is a single flaw in the work, which is excusable and redeemable. Often the discounting in the chapters is done over a flat interest rate curve to make the example explicit and clear. The material on the term structure of interest rates is covered and expanded, and historical term structures and parallel shifts and steepening and flattening is covered in isolation in thorough chapters and with wonderful data files. The necessity and explicit connection of discounting from an appropriate yield curve is often left implied and only mentioned in a few exercises. I would have preferred that each chapter where discounting a time series was necessary ended with a small section showing explicit valuation under a yield curve with advanced models. BLOOMBERG and REUTERS have these sort of things (often incorrectly) programmed, but students must learn explicitly about and do exercises themselves to comprehend the importance of curve discounting. I preferred the old CD-ROM that came with the 1,2nd, and 3rd editions of the book, but I am showing my age. The downloadable models that accompany the text are alone worth the price, with over three score of models that are practical and adaptable for students and professionals alike. They are easy and straightforward to download, but do demand a stable optical or T1 line when doing so. The files are sorted and separated according to chapters and subject matter. Each file has logical progression of the concepts advanced in the book, and each separate sheet either stands alone or appropriately links to data and models on other sheets, so editing for your own purposes is a breeze. For those who want to train themselves in Finance (not "personal finance") then I suggest reading Copeland, Weston, & Shastri's Financial Theory and Corporate Policy (4th Edition) and Brealey, Myers, and Marcus's "Corporate Finance" and "Investments" followed by working through FM4. Such a course would give any self-disciplined person the equivalent of a Master’s of Science in Finance. The appropriately sized typeface is clear crisp Times Roman printed on off-white-touch-of-cream paper, so it is perfect under incandescent, florescent, or natural light and has no glare nor causes eye fatigue. Full disclosure: Professor Benninga and I correspond by e-mail, and I have taught in graduate and undergraduate and executive programs using the previous editions of this work since 1998, and am thanked in the acknowledgements of some editions for pointing to typographical errors. He has been unfailingly supportive to my work and my students, a mensch and a tzadik. Purchase this book now for a brighter financial future. - “Bachelier” Paris, September 2014.

Excelente herramienta

Best book I have on financial modeling. Shows that there is nothing more practical than a good theory! . Chapters on Capital Market and Security Market lines are outstanding.

I would suggest this book at anyone interested in learning how to use excel for Finance (eg building Valuation Models, Portfolio optimisation, ...). I would suggest to buy this book if you already have mastered the Financial concepts that are covered throughout the book, since even if the book is giving you brief theoretically explanation, it isn't as good as a book focused only on those concepts. I think this book is very good at introducing you to Macros in Excel. One thing I found particularly helpful was the supplementary material that is available to download.

amazing book for BSs/MSc finance students and not only. Very useful and practical.