Financial Modelling

Module description

Summary:

This module equips you with the knowledge and tools to implement financial models using Excel. The module covers a range of topics in finance drawn from investment analysis, corporate finance, fixed income analysis, risk management and international finance.  The emphasis of the module is on the practical application of finance theory, with lectures on each topic followed by in- depth practical classes, in which you will work through real world problems using Excel.

Additional Information:

Employability

This is an applied module that covers the implementation of quantitative financial models that are widely used in financial institutions such as investment banks, mutual funds and hedge funds, and in non-financial corporations.

Internationalisation

The content of this module is relevant to the finance industry in an international setting, with examples drawn from a number of global financial markets.  The international aspects of finance are explicitly addressed through the modelling of exchange rates.

Sustainability

The sustainable operation of financial markets relies on the fact that security prices reflect the fair value of the future cash flows that they promise to pay.  The fair valuation of security prices is maintained by the actions of investors, who exploit deviations from fair value through the implementation of financial models such as those covered in this module.

Research in Teaching

Some of the material covered in the module draws on research in the area of applied finance undertaken by the module convener, and either published in academic journals or used as a basis for commercial consultancy.  Where appropriate, references to this research will be provided.

Full module specification

Module title:Financial Modelling
Module code:BEA3026
Module level:3
Academic year:2018/9
Module lecturers:
  • Professor Richard Harris - Convenor
Module credit:15
ECTS value:

7.5

Pre-requisites:

BEA1010 Business Finance for Accountants

Co-requisites:

None

Duration of module: Duration (weeks) - term 1:

11

Module aims

The aim of this module is to equip you with the knowledge and tools to implement financial models using Excel.  The course introduces you to the general principles of building financial models, as well as a number of specific financial modelling tools including regression analysis, statistical functions, matrix functions, optimization and simulation.  These methods are applied to a range of practical problems in finance, including financial statement modelling, yield curve modelling, risk management and exchange rate modelling.  The emphasis of the course is on practical application of the theory, with lectures on each topic followed by in-depth practical classes, in which you will work through real world problems using Excel.  The module will also introduce you to the use of VBA (Microsoft’s programming language) in financial modelling.

ILO: Module-specific skills

  • 1. explain the objectives of financial modelling and the characteristics of financial data
  • 2. download financial data from the internet for a range of securities, including stocks, bonds and currencies
  • 3. undertake a range of financial and statistical calculations in Excel
  • 4. estimate the cost of capital for a company
  • 5. build a financial statement model and use this to estimate the fair value of a company
  • 6. estimate the expected yield of a corporate bond
  • 7. construct a yield curve
  • 8. evaluate the risk of an investment portfolio
  • 9. estimate the fair value of a currency
  • 10. implement currency trading strategies based on momentum, carry and fair value

ILO: Discipline-specific skills

  • 11. evaluate the characteristics of financial data and their statistical properties
  • 12. explain the nature and use of financial statement models
  • 13. estimate corporate and Treasury bond yields and yield curves
  • 14. use simulation to model the distribution of financial security returns
  • 15. design a range of different trading strategies and test their effectiveness

ILO: Personal and key skills

  • 16. solve applied problems using Excel
  • 17. download and manipulate complex data
  • 18. plan and undertake independent research
  • 19. present research in a professional manner
  • 20. work effectively in teams

Learning activities and teaching methods (given in hours of study time)

Scheduled Learning and Teaching ActivitiesGuided independent studyPlacement / study abroad
301200

Details of learning activities and teaching methods

CategoryHours of study timeDescription
Contact hours12Lectures (6 x 2 hours)
Contact hours18Practical Classes (6 x 3 hours)

Formative assessment

Form of assessmentSize of the assessment (eg length / duration)ILOs assessedFeedback method
Weekly online quizzesSix quizzes, each taking about 20 minutes1-16Correct answers provided on ELE
Weekly case studiesSix weekly supervised practical case studies, each lasting three hours1-18Feedback during practical classes and suggested solutions provided on ELE

Summative assessment (% of credit)

CourseworkWritten examsPractical exams
50500

Details of summative assessment

Form of assessment% of creditSize of the assessment (eg length / duration)ILOs assessedFeedback method
Individual test50One hour1-16Correct answers provided on ELE
Group written assignment (five students per group)404000 words, excluding tables, figures and references1-20Standard feedback form
Peer evaluation of group assignment10Evaluation form on ELE1-20Peer evaluation scores and comments provided on ELE

Details of re-assessment (where required by referral or deferral)

Original form of assessmentForm of re-assessmentILOs re-assessedTimescale for re-assessment
Individual testIndividual assignment (800 words)1-19July/August
Group written assignment & peer evaluationIndividual assignment (800 words)1-19July/August

Re-assessment notes

Students who fail the module overall will resit the component(s) in which they failed.

Syllabus plan

  • Introduction
  • Financial statement modelling
  • Default adjusted bond yields
  • Yield curve modelling
  • Risk management
  • Exchange rate modelling

Indicative learning resources - Basic reading

Basic reading:

Benninga, S. (2014) Financial Modelling, 4th edition, Massachusetts: MIT Press.

ELE – http://vle.exeter.ac.uk/course/view.php?id=158

Module has an active ELE page?

Yes

Indicative learning resources - Web based and electronic resources

To be advised during the course.

Indicative learning resources - Other resources

To be advised during the course.

Origin date

27/02/2015

Last revision date

04/08/2017