Financial Modelling Workshop - Analysis, Measurement and Valuation

The objective of this highly practical PC-based workshop is to give you a good understanding and hands-on experience with tools and techniques used in financial modelling and investment analysis.

First, we give a review of the basic mathematical and statistical concepts that are widely used in the field of finance. We explain concepts such as “Time Value of Money”, variance and standard deviation and other descriptive statistics. We also present and explain a variety of probability measures and statistical tools such as regression analysis and random number generation.

The remaining part of the workshop is divided into four practical “sessions”.

In session one, we present and explain a number basic risk measures that are used in the risk assessment of equity and fixed income investments. The measures include sensitivity measures such as beta for stocks and modified duration and convexity for bonds, as well as statistical risk measures derived from estimated loss distributions, such as “Value-at-Risk”.

In session two, we look at measures of investment performance, including “time-weighted” and “money-weighted” return and various measures of risk-adjusted and relative performance.

In session three, we explain how “total return analysis” can be used to rank alternative investments, based upon explicit assumptions about horizon yields and prices, reinvestment rates, dividend growth and other inputs.

Finally, in session four, we look at the economics of “project finance”. We explain how a project is set up and organized, and we explain and present a number of methods and key ratios for evaluating the costs, benefits and risk of projects.

The individual sessions will be designed as a mix of theoretical presentations, practical examples and cases, and “hands-on” exercises. Participants are requested to bring their own laptop.

 

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Review of Basic Financial Mathematics

• Time Value of Money and Cash Flow Analysis
• Descriptive Statistics
  • Mean, variance, standard deviation, skewness, kurtosis,…
• Probability Analysis
• Statistical Tools
  • Regression analysis, random number generation,…
• Small Exercises

Session 1: Basic Risk Measures

• Building Blocks in Risk Analysis
• Sensitivity Measures for Equity Investments
  • Alpha, Beta and factor sensitivities
• Sensitivity Measures for Fixed-Income Investments
  • Duration, modified duration, convexity, key-rate duration
• Statistical Measures of Risk
  • Value-at-Risk, Earnings-at-Risk, Capital-at-Risk,..
• Practical Examples
• Workshop

12.00 - 13.00 Lunch

13.00 - 16.30 Session 2: Performance Measurement

• Measuring Return
  • Arithmetic and geometric returns
• One-Dimensional Measures of Performance
  • Internal rate of return
  • Money-weighted return
  • Time-weighted return
• Risk-Adjusted Measures of Performance
  • Treynor index
  • Sharpe index
  • Sortino ratio
  • Lower partial moments
• Relative Measures of Performance
  • Tracking error
  • Information ratio
• Workshop

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Session 3: Total Return Analysis (Horizon Analysis)

• Purpose of Total Return Analysis
• “Total Return” Concept
• Assessing Reinvestment Risk
• Assessing Principal Risk
• Calculating Expected Return
• Sensitivity Analysis
• Switch Analysis (Bonds)
  • Arbitrage switch
  • Duration switch
  • Convexity switch
  • Spread trades
• Using Total Return Analysis in Constructing Optimal Portfolios
• Workshop
• Total Return Analysis for Equity Investments
  • Assessing residual value
  • Estimating total return and risk
  • Constructing optimal portfolios
• Workshop

12.00 - 13.00 Lunch

13.00 - 16.30 Session 4: The Economics of Project Finance

• Introduction to Project Finance
  • Definition
  • Rationale and motives
  • Characteristics
• Structuring Projects
• Typical Financing Structure
• Typical Structure for Allocation of Risk
• Valuing Projects
• Analyzing Debt Capacity
• Analyzing Debt Sensitivities
• Managing Project Risk
• Case Study: The A2 Motorway
• Workshop

Evaluation and Termination of the Workshop