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Financial Modeling with VBA

Intention. . Implement theories/models from TI4140Presenting small examples of various types of financial modelsBS Model with Greeks and Implied volatilityThe Binominal ModelMonte Carlo SimulationSupport for students taking future project in financial modellingJob preparation Financial Engin

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Financial Modeling with VBA

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    1. Financial Modeling with VBA Presentation 16/2 2004 Sjur Westgaard, NTNU

    2. Intention

    3. Main Focus in our course: Option Models and Pricing Algorithms

    4. Broad Examples of Applications (see additional material on reading list)

    5. Todays and tomorrows schedule Monday 15/2 - 2004 Intro VBA/Excel Black & Scholes Model Historical versus Implied Volatility Greeks in the Black & Scholes Model Tuesday 16/2 2004 The Binominal Model Monte Carlo Simulation and Option Pricing

    6. The Black-Scholes Formulas

    7. The parameters in Black & Scholes Stock price S (Read directly from the market) Exercise price K (Specified in the contract) Time horizone T (Specified in the contract) Risk free rate of return r (Read directly from the market NB! Use zero coupon yield government bills or bonds on a T horizon) Volatility of the stock ? (Must be estimated from time series data)

    10. Before we implement the formula; Estimation of Volatility from Historical Data 1. Take observations S0, S1, . . . , Sn at intervals of t years 2. Define the continuously compounded return as: 3. Calculate the standard deviation, s , of the ui ´s 4. The historical volatility estimate is scaled in the following way:

    12. Example Pricing OBX MAR 690 Call at 13/2 2004

    13. VBA in Excel B&S formula

    14. The VBA Editor

    15. Functions in VBA for Excel

    16. Variable declaration in VBA

    17. The Dim (Dimension) statement

    18. Using If statement in VBA functions

    19. Using function libraries in VBA

    20. The hole VBA program

    22. The Black-Scholes Formulas How does the option price change with respect to a change in; Underlying Index Volatility of the index Time to maturity Interest rate ?

    23. Option sensitivities – The Greeks

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