Financial Modeling with Crystal Ball and Excel Chapter 1 pptx

[...]... Modeling Financial Statements Deterministic Model Tornado Chart and Sensitivity Analysis Crystal Ball Sensitivity Chart Conclusion CHAPTER 9 Portfolio Models Single-Period Crystal Ball Model Single-Period Analytical Solution Multiperiod Crystal Ball Model CHAPTER 10 Value at Risk VaR Shortcomings of VaR CVaR 71 71 73 79 89 95 95 98 10 1 10 3 10 4 10 5 10 5 10 7 11 1 12 1 12 5 12 5 12 6 12 9 12 9 13 2 13 2 13 4 13 5 14 0 14 0... Option Pricing Exotic Option Pricing Bull Spread Principal-Protected Instrument CHAPTER 13 Real Options Financial Options and Real Options Applications of ROA Black-Scholes Real Options Insights ROV Tool Summary ix 14 7 14 7 14 9 15 0 15 4 15 7 16 0 16 4 17 0 17 0 17 1 17 4 17 7 17 9 18 3 18 4 18 7 18 7 18 8 19 1 19 3 200 Appendix A Crystal Ball s Probability Distributions 202 Appendix B Generating Assumption Values 235... his or her models L 1 2 FINANCIAL MODELING WITH CRYSTAL BALL AND EXCEL Crystal Ball enables you to use a systematic approach to account for uncertainty in your spreadsheet models The first six chapters of this book demonstrate how to use Crystal Ball The remainder of the text provides examples of using Crystal Ball models to help solve problems in corporate finance, investments, and financial risk management... normal distribution with mean, µ, and standard deviation, σ , then the random variable Y = a + bX will also be normally distributed with mean, a + bµ, and standard deviation, bσ Therefore, we can easily determine that (Total Cost) is normally distributed with mean, 10 0 + (15 × 50) = $850, and standard deviation, 15 × 10 = $15 0 Using a table of cumulative probabilities for the standard normal distribution,... follow the Poisson distribution with mean 10 ; price, P, is lognormally distributed with mean $50 and standard deviation $10 ; variable cost percentage, V, has the beta distribution with parameters minimum = 0%, maximum = 10 0%, alpha = 2, and beta = 3; and fixed cost, F = $10 0 Then profit, π , is calculated as π = SP (1 − V) − F (1. 1) in the Profit.xls model shown in Figure 1. 1 The stochastic assumptions in... of building a Crystal Ball model It starts out with a simple, deterministic business planning Excel model, and then shows you how to add stochastic assumptions to it with Crystal Ball The chapter also contains a discussion of possible sources of error in your models and how they can be controlled Chapter 4 contains a deeper look at specifying Crystal Ball assumptions It describes Crystal Ball s basic... be found Chapter 10 discusses Value at Risk (VaR) and its more sophisticated cousin, Conditional Value at Risk (CVaR), the relative merits of VaR and CVaR, and how they are used in risk management Chapter 11 describes how to simulate financial time series with Crystal Ball It covers random walks, geometric Brownian motion, and mean-reverting models, as well as a discussion of autocorrelation and how... or using the Excel function = 1- NORMDIST (900,850 ,15 0, TRUE), we can find that the probability is 36.94 percent that (Total Cost) is greater than $900 See the file Analytic.xls for these calculations, along with a Crystal Ball model that validates the solution 5 Introduction FIGURE 1. 1 Simple profit model in Profit.xls Cells C5:C7 are defined as Crystal Ball assumptions Cell C 11 is a Crystal Ball forecast... 10 5 10 7 11 1 12 1 12 5 12 5 12 6 12 9 12 9 13 2 13 2 13 4 13 5 14 0 14 0 14 2 14 2 Contents CHAPTER 11 Simulating Financial Time Series White Noise Random Walk Autocorrelation Additive Random Walk with Drift Multiplicative Random Walk Model Geometric Brownian Motion Model Mean-Reverting Model CHAPTER 12 Financial Options Types of Options Risk-Neutral Pricing and the Black-Scholes Model Portfolio Insurance American Option... MODELING WITH CRYSTAL BALL AND EXCEL In short, probability and statistics help you weigh the potential rewards and punishments associated with the decisions you face This book shows you how to use Crystal Ball to add probabilistic assumptions and statistical forecasts to spreadsheet models of a wide variety of financial problems In the end, you still must make decisions based on your best judgment and . class="bi x0 y0 w0 h0" alt="" Financial Modeling with Crystal Ball and Excel JOHN CHARNES John Wiley & Sons, Inc. Financial Modeling with Crystal Ball and Excel Founded in 18 07, John Wiley &. 10 3 Statistics 10 4 CHAPTER 7 Net Present Value and Internal Rate of Return 10 5 Deterministic NPV and IRR 10 5 Simulating NPV and IRR 10 7 Capital Budgeting 11 1 Customer Net Present Value 12 1 CHAPTER 8 Modeling. Crystal Ball Model 13 2 Single-Period Analytical Solution 13 4 Multiperiod Crystal Ball Model 13 5 CHAPTER 10 Value at Risk 14 0 VaR 14 0 Shortcomings of VaR 14 2 CVaR 14 2 Contents ix CHAPTER 11 Simulating