Financial Risk Modeling

4 mins read time

When was the last time you built a financial risk model in EXCEL? Do you remember wishing for a step by step guide? A model template? A translation of the differential equation from continuous to discrete spreadsheet friendly implementation? A risk spreadsheet that you could actually follow? From Option pricing to Value at risk; from Asset Liability Management to Treasury profitability analysis financial risk modeling EXCEL spreadsheets simplify our lives and make it possible for us to generate and test answers and analysis.

Option Pricing using Monte Carlo Simulation - Pricing a lookback option
Option Pricing using Monte Carlo Simulation – Pricing a lookback option

We do this by providing high level views of spreadsheet models; discrete spreadsheet friendly implementations and quite frequently a step by step guide to building a financial risk model.

The financial risk modelling spreadsheet guide is for do it yourself (DIY) types. If you enjoy building and testing models in Excel, you will find quite a few quick reference posts. If you don’t this is probably the last page you would want to spend time on.

Various Applications of Financial Risk Modeling

The collection below represents a comprehensive listing of what we have written on building risk, portfolio and banking spreadsheet models. The content is structured and organized based on topic popularity. The posts are generally short on text and words and long on content and value. Enjoy!

Commodity Pricing Models for Oil & Gold

A financial risk modeling guide to calculating trailing volatility and correlation followed by a short post that tries to tackle the Gold bubble question? Is Gold overvalued? What can the relative pricing model tell us?

Financial Risk Modeling - WTI Crude Oil daily return series
WTI Crude Oil daily return series
Asset Liability Management

A short financial risk modelling guide to Asset Liability Management reporting templates, assumptions and conventions including a review of building Maturity and Liquidity gaps.

Financial Risk Modeling - Building Maturity Gaps
Building Maturity Gaps
Financial Risk Modeling - ALM Model
ALM Model

Interest Rate Models in EXCEL

Financial risk modeling may be used to forecast interest rates using one and multi-factor models in EXCEL

Cox Ingersoll Ross (CIR) model

Black Derman Toy (BDT) model

Heath Jarrow Merton (HJM) model

Value at Risk, Correlation, Volatility

We use financial risk modeling to calculate VaR and other market risk measures.

Value at Risk

Correlation

Market Risk Metrics

Monte Carlo Simulation

Financial risk models that use Monte Carlo Simulation simulate oil prices, market prices, fuel consumption and fuel hedging results. 

Financial Risk Modeling - Simulating the distribution
 Simulating the distribution 
Financial Risk Modeling - Simulation Model inputs
Simulation Model inputs
Option Greeks – Delta Hedging

If the Greeks had you confused, we have the perfect Rosetta Stone for you. Bring Monte Carlo Simulation and good old fashioned accounting together to decode Delta, Gamma, Vega, Theta and Rho.

Financial Risk Modeling -Option Greeks – Vega & Moneyness – Hedging higher order Greeks

Option Greeks – Vega & Moneyness – Hedging higher order Greeks
Option Pricing

The big, thick, fat collection of posts on Option pricing financial risk models from pricing forwards, to exotics to swaps.

Forward prices and rates

Exotics

Swaps

Pricing with Binomial trees