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Financial Modeling Hardcover – Jan 8 2008
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"Financial Modeling by Simon Benninga is an outstanding resource for teaching the essentials of finance to both undergraduates and masters students. It is comprehensive, lucid, and a highly useful resource in every financial modeler's toolkit."--Richard W. Roll, Professor of Management, and Japan Alumni Chair in International Finance
"I've learned a great deal from the first two editions of Simon Benninga's Financial Modeling, and the Third Edition offers both new topics and updated coverage of topics from earlier editions. The book gives clear, well-illustrated instructions for using Excel software to solve finance problems, ranging from basic to highly sophisticated, in both corporate finance and investments. The many excellent examples draw on actual company data, and the book gives useful tips on obtaining current data from the internet. Financial Modeling is an outstanding resource for finance professionals, instructors and students. As with earlier editions, I plan to keep my copy close at hand."--Robert A. Taggart, Professor of Finance, Carroll School of Management, Boston College(Robert Taggert)
"The new edition of Simon Benninga's Financial Modeling is a comprehensive and effective learning-by-doing tool in motivating users and making easily accessible the concepts of modern corporate finance, investments, and derivatives. In the real world of finance, its clear step-by-step approach empowers the practitioner to search the internet for financial data, build programs to analyze them, and make sound financial decisions. I strongly recommend it to the finance student and practitioner alike."--George Constantinides, Leo Melamed Professor of Finance, The University of Chicago Graduate School of Business(George M. Constantinides)
For the 2nd Edition: "Benninga has a clear writing style and uses numerous illustrations, which make this book one of the best texts on using Excel for finance that I've seen." Ed McCarthy Ticker Magazine
For the 2nd Edition: "The author describes this as a 'cookbook' and that is a good analogy.... Its breadth is extensive, covering simple present valuing and cost of capital... to the likes of real options and early exercise of American-style options.... A worthwhile acquisition." Paul Dentskevitch Risk Magazine
For the 2nd Edition: " Financial Modeling belongs on the desk of every finance professional. Its no-nonsense, hands-on approach makes it an indispensable tool."Hal R. Varian , Dean, School of Information Management and Systems, University of California, Berkeley
For the 2nd Edition: "This is applied finance theory for the professional at its best. As a student, I and countless others learnt the intricacies of Lotus and financial theory from Professor Benninga"s first book -- Numerical Techniques in Finance. Now, as a professional, I do not have to "re-invent the wheel" in Excel. An invaluable guide. A must for all financial analysts."Vikas Nath , Global Strategist, Emerging Equity Markets, Union Bank of Switzerland, London
"I"ve learned a great deal from the first two editions of Simon Benninga"s Financial Modeling, and the Third Edition offers both new topics and updated coverage of topics from earlier editions. The book gives clear, well-illustrated instructions for using Excel software to solve finance problems, ranging from basic to highly sophisticated, in both corporate finance and investments. The many excellent examples draw on actual company data, and the book gives useful tips on obtaining current data from the Internet. Financial Modeling is an outstanding resource for finance professionals, instructors and students. As with earlier editions, I plan to keep my copy close at hand."Robert A. Taggart , Professor of Finance, Carroll School of Management, Boston College
"The new edition of Simon Begginga"s Financial Modeling is a comprehensive and effective learning-by-doing tool in motivating users and making easily accessible the concepts of modern corporate finance, investments, and derivatives. In the real world of finance, its clear step-by-step approach empowers the practitioner to search the Internet for financial data, build programs to analyze them, and make sound financial decisions. I strongly recommend it to the finance student and practitioner alike."George Constantinides , Leo Melamed Professor of Finance, The University of Chicago Graduate School of Business
About the Author
Simon Benninga is Professor of Finance and Director of the Sofaer International MBA program at the Faculty of Management at Tel-Aviv University. For many years he was a Visiting Professor at the Wharton School of the University of Pennsylvania.
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For further information, please use the "Look Inside" feature and examine the Table of Contents carefully, because I will emphasize selected portions.
It is difficult to overstate how useful and practical and helpful this work is for a wide audience and Financial Modelling is the single finance book I recommend for everyone after they have taken (or read themselves) Introductory Finance.
For those looking for "one-stop-shopping" for models that resemble those of professional financial analysts then there is no better value than Benninga's FM3.
Benninga's FM3 is a coal-face work for those who must make financial decisions using models. There are further specialist texts in topics covered here (credit modelling, portfolio construction, option pricing), but the models in FM3 are the first advanced models applied to loans, bonds, options, and equity portfolios. Master these and then specialized texts are easier to digest.
"Cookbook" metaphors are too strong and do not do this work justice, for Financial Modelling 3rd (FM3) 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 FM3 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" emphasises technique and a few well-selected recipes.
The welcome new chapters cover bank valuation, the Black-Litterman approach to portfolio optimization, and Monte Carlo methods and applications to option pricing, and the previous 2nd edition's small chapter on using array functions and formulas has been expanded. The chapter on data downloads from YAHOO is also welcome, especially for those on a budget.
There is a single significant flaw in the work, which is excusable and redeemable. Far too often the discounting in the chapters is done over a flat interest rate curve. While the term structure of interest rates is covered, and historical term structures and parallel shifts and steepening and flattening is covered in isolation in a thorough chapter and with wonderful data files, the necessity and explicit connection of discounting from an appropriate yield curve is left implied and only mentioned in a few exercises. I would have preferred a "round up" chapter where each of the subjects treated (bond discounting, portfolio expected returns, options, etc.) under a yield curve with advanced models. Sure BLOOMBERG and REUTERS have these sort of things (often incorrectly) programmed, but students need to learn explicitly about them and do the exercise themselves to comprehend the importance of curve discounting.
The CD attached in the back of the book is alone worth the price, with over two score of models that are practical and adaptable for students and professionals alike. The files are stored 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 FM3. Such a course would give any self-disciplined person the equivalent of a Masters of Science in Finance.
Full disclosure: I am thanked in the "Acknowledgements" for providing a few helpful comments on the second edition.
An advantage of using this book is that it teaches you financial modeling using Excel, which most people have or have access to. This means that you can use most of the tools that are used in this book, and you can share your files with other people. If you use programs such as MATLAB or SAS, it is likely that you can only present the results of your analysis without sharing the programs or data. In Excel, all your data and calculations are available for everyone, which makes sharing much easier.
There are many interesting things that are taught in this book. An example of a neat trick you will learn in this book includes the use of the LINEST function and other regression-related functions. These functions are dynamic in that the results of the regression change when you change your data, unlike the use of the Analysis Toolpak's Regression feature which you have to re-run every time you make a change to your data.
In addition, for those that want to harness more of Excel's modeling power, the author includes sections with VBA codes. VBA codes allow the user to program and tell Excel how to perform tasks. For example, you can build your own function that can calculate option values rather than having to input or edit a formula repeatedly. More serious students should attempt to learn to program in VBA. For most purposes, an advanced modeler in Excel can create programs that would yield similar results to those of more powerful software like MATLAB.
Professor Benninga is an authority on numerical methods in finance and financial engineering. The credit goes in making the sophisticated financial modelling look simple with excel so that any person with some background and interest in finance can work through it and understand the latest in theory and practice. Before i read this book, I had little idea that topics like event study, Black-Litterman approach, calculatng default adjusted expected Bond returns,Value at Risk (using monte carlo as well as bootstrapping) and option geeks can be so easily explained using excel. For readers who have little experience in higher level programming language, the Visual Basic Application would be a great way to get started.The book has a wealth of VBA programs which can be customized to one's needs. I yearned for having a way to download and manipulate the latest market data from yahoo or msn rather than having to update it manually (or through an excel add-in provided in microsoft site which has limited capabilities). The book uses VBA ways to download and process the raw data fro yahoo finance and MSN money. At the end of the last chapter of the book the author says that the "The sky is the limit". I agree with him completely, the sky is the limit with this book. For academics, this book can be used in an elective course in Finance for MBA or a masters level course in Finance or financial economics. I highly recommend the book to anyone interested in Financial modeling.
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