Introduction to Simulation for Financial Professionals

The success of traders, portfolio managers, CFOs and corporate strategists is crucially dependent on decisions made today, based on analyses of an uncertain future. Whether you are comparing potential option trades, managing portfolio risk, hedging foreign-currency receivables or evaluating proposed R&D projects, maximizing ROI depends on the choices you make now, even as the future consequences of your decisions are uncertain.

For key decisions you must make today, Introduction to Simulation for Financial Professionals will provide you with a probabilistic framework for forecasting a range of outcomes, determining the most likely results, and undertanding the consequences of under-performance or over-performance.

In this three-day course, you will learn to create probability distributions for future profits, cash flows, and investment returns, by applying Monte-Carlo simulation methods. You will learn to interpret these distributions, and use them to compute expected values, probabilities of breaking even, and Value at Risk of your trading/investing/hedging/budgeting options. You will acquire these skills while working with Excel software and Oracle's Crystal Ball add-in, and by applying your basic statistical knowledge.

19-Nov-2008 -- 21-Nov-2008New YorkUSD$3275
NY Institute of Finance - Midtown9:00am - 4:30pm Instructional Method:
Group-Live
Instructor(s): [ Anthony Webster; ] Wed Thu Fri Level: Intermediate
CPE Credits: 21.0

Any financial professional who needs to understand the future implications of economic decisions they make today.
No advance preparation required.
Students will be able to:
  • Understand how probabilistic forecasts are traditionally made for straightforward financial quantities, such as the future return of an equity-portfolio
  • Understand how Monte-Carlo simulation can be used to duplicate these classically-obtained results.
  • Use Oracle's Crystal Ball software to create simple Monte-Carlo simulations in an Excel spreadsheet.
  • Create probabilistic forecasts with Crystal Ball and Excel to understand a variety of more complicated, realistic problems drawn from the fields of investment management, corporate finance and financial planning.
  • Analyze, interpet and act on the information in their forecasted distributions.
  • Create risk-policies for forecasted quantities, and optimize financial outcomes by applying their policies to their foreasts.
A one-semester college-level course in probability and statistics, or equivalent; Proficiency with Excel; Working knowledge of corporate finance, investment management, or financial planning; A laptop running Crystal Ball which must be brought to each class. NYIF will provide a time-limited copy of Crystal Ball to students prior to the first class. It is the student's responsibility to install Crystal Ball on their laptop, and to verify its proper operation prior to the first class meeting.
  • High Yield Debt: Valuation & Risk Assesment
  • Portfolio Management Suite
    • Day One
    Morning
    • Review of traditional, probabilistic forecasting:
    • - Identifying random variables
    • - Estimating probability distributions
    • - Extracting forecasts: expected values, VAR, Sharpe Ratio, Pareto Ratio
    • Examples:
    • -Equity portfolio returns
    • - Operating profit of a consulting firm
    • Using Monte Carlo simulation to duplicate the above analysis

    Afternoon

    • Introduction to Monte Carlo forecasting with Crystal Ball and Excel.
    • In-class projects:
    • -Equity portfolio returns
    • - Operating profit of a consulting firm
    • Benefits and drawbacks of simulation
    • In class project
    • - Simulation-based hedging of an equity portfolio with options

    Day Two
    Morning
    • Establishing risk/reward measures and policies
    • Simulation-based hedging of foreign-currenty (FX) receivables
    • Case study example
    • - Currency hedging at Pfizer
    • - Value at Risk (VAR)
    • In class project
    • - Hedging FX receivables with currency options

    Afternoon

    • Distributions review:
    • - Normal, truncated normal, lognormal, uniform, scenarios
    • Simulation-based capital budgeting (projct valuation);
    • - Distribution of a project's NPV
    • Case-study example:
    • - Consolidating plants at Standard Motor Products (SMP)

    Day Three
    Morning
    • Simulation-based value investing for equities and high-yield bonds
    • Case-study examples:
    • -Rite Aid's high-yield bonds
    • -Transmeridian Exploration's common stock
    • Simulation-based financial plans for high-net-worth individuals
    • Case-study examples
    • - How much must investor X save now to ensure her net assets outlive her?

    Afternoon

    • Simulation-based DCF valuation of equities
    • in class project:
    • - DCF valuation of Continental Airlines (CAL)
    • Course review and wrap up

    Clients who register for this course will receive a complimentary 6 month subscription to the Financial Times and FT.com. The Financial Times is the world's most respected financial newspaper providing a broad assessment on finance, business and the industrial sector. Subscriptions will start within 6-8 weeks of the application process, and are limited to one per client. For questions about your subscriptions call 800-628-8088 or email uscirculation@ft.com. US and Canada enrollees only.

    Lunch included for all students taking day classes.