What would you like to learn today? Our computational finance and financial modeling How-to posts & tutorials that walk you through specific topics or questions you might have. Topics include Bank ALM, Treasury, Portfolio Optimization, ICAAP, Derivative Pricing, Monte Carlo Simulation, Credit Analysis and Oil Price modeling.
Below is a list of some of our more popular tutorials that you may find useful:
Asset Liability Management
1. How to calculate Earnings at Risk
A VaR based approach that takes into account non-parallel shifts in the term structure and its impact on the earnings portfolio of the bank.
2. How to calculate Economic value of equity (EVE) or Fall in Market Value of Equity (MVE).
EVE or MVE derived from changes in the market values of assets and liabilities based on the value at risk (VaR) approach.
3. How to calculate duration for bonds with settlement dates between coupon dates using EXCEL?
We demonstrate how to calculate duration from first principles and how the results tally with numbers generated using EXCEL DURATION (for Macaulay Duration), PRICE & MDURATION (for Modified Duration) functions.
Derivatives
1. Forward Implied Volatility in EXCEL
How to calculate forward volatilities for forward buckets from spot volatilities implied in current market option prices.
2. Calculating Potential Future Exposure for IRS Using HJM.
A step by step walk through of how to build a model for calculating PFE for IRS using HJM in EXCEL to measure counterparty default risk for an interest rate swap over its lifetime.
3. How to price Interest Rate Swaps – LIBOR discounting vs OIS discounting.
The difference between using LIBOR vs OIS to MTM interest rate swaps in OIS swap pricing models.
4. How to calculate the value of a forward contract in EXCEL
Calculate the value of forward contracts with no income, known cash income & known dividend yield respectively, for continuous and discrete risk free rate compouning.
5. How to calculate the forward price of a security in EXCEL
Formulas for calculating the forward prices of instruments with no income, with known cash income and with a known dividend yield respectively.
6. How to calculate Spot Rates, Forward Rates & YTM in EXCEL
A calculation reference to determine Spot Rates & Forward Rates and YTM using both Trial & error method and EXCEL’s Goal Seek functionality.
7. How to calculate the values of Forward Rate Agreements & Forward Foreign Exchange Rates in EXCEL
Presents formulas for determining values of FRAs & Forward FX contracts with interest rates compounded on continuous & discrete basis.
Interest Rate Modelling
1. Bootstrapping the Zero Curve & Forward Rates
A walk through of the process of building a zero curve bootstrapping model in EXCEL.
2. How to Build a Black Derman Toy Model in EXCEL
A step by step methodology for building a one factor Black Derman Toy model in EXCEL.
3. How to estimate the parameters of a CIR interest rate model and calibrate them to observable market interest rates?
A practical example of how CIR parameters may be calibrated and on how these resulting parameters may be used to simulate short-term interest rates and model longer term rates.
4. How to calculate Duration and Convexity for specific US Treasuries
A walk through of how to calculate Macaulay, Modified and Effective Duration as well as Convexity for the selected Treasury issues.
Option Pricing
1. Volatility Surfaces Modeling in EXCEL
A step by step walk through of volatility surface modelling using raw implied volatility data and finishing with a completed surface in EXCEL.
2. Hedging Gamma and Vega Exposure in EXCEL
Hedge Gamma and Vega exposure for a single short position in a call option contract.
Value at Risk
1. Value at Risk for Options & Futures
Use a Monte Carlo Simulator to first generate a terminal price series, calculate the related payoffs & option price series, determine the return series and then use the returns to calculate the volatility and VaR calculations.
2. Value at Risk EXCEL Example
How to calculate VaR in EXCEL using two different methods – Variance Covariance and Historical Simulation with publicly available data.