Financial Models Using Simulation and Optimization II: Investment Valuation, Options Pricing, Real Options, and Product Pricing Models

Topics covered include:

o Modeling future stock prices and hedging stock price and interest rate risk. Examples include Value At Risk (VAR), incorporating analyst forecasts, correlating stock forecasts, and bootstrapping.

o Portfolio optimization, including minimizing a portfolio's risk, finding the Efficiency Frontier, minimizing the probability of loss, and maximizing the Sharpe Ratio.

o Valuing a firm or a stock price, including modeling key drivers of firm value, incorporating simulation into Proforma models, forecasting income of a corporation, and modeling profitability of a new product.

o Real options and options pricing analysis, including valuing options by arbitrage methods, Black-Scholes pricing, estimating volatility using the historical and implied volatility approaches, option pricing using the risk neutral approach, binomial and lognormal pricing models.

o Pricing and marketing models, including optimal product bundling, price response to currency fluctuations, conjoint analysis, and discrete choice analysis.

o Plus: playing craps with @RISK and simulating the NBA finals!

Examples in this book have been developed and used successfully at companies such as GM, Microsoft, Intel, and Cisco. All files discussed are included on CD-ROM. The book is suitable for advanced undergraduates, MBAs, and most of all practicing financial professionals for both self-study or education classes.