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128 of 137 people found the following review helpful
on February 20, 2008
Simon Benninga's 3rd Edition of Financial Modelling with Excel is the single most useful book for finance students and professionals ever published and continues to offer an outstanding reference and textbook for students and practitioners of applied finance.

For further information, please use the "Look Inside" feature and examine the Table of Contents carefully, because I will emphasize selected portions.

It is difficult to overstate how useful and practical and helpful this work is for a wide audience and Financial Modelling is the single finance book I recommend for everyone after they have taken (or read themselves) Introductory Finance.

For those looking for "one-stop-shopping" for models that resemble those of professional financial analysts then there is no better value than Benninga's FM3.

Benninga's FM3 is a coal-face work for those who must make financial decisions using models. There are further specialist texts in topics covered here (credit modelling, portfolio construction, option pricing), but the models in FM3 are the first advanced models applied to loans, bonds, options, and equity portfolios. Master these and then specialized texts are easier to digest.

"Cookbook" metaphors are too strong and do not do this work justice, for Financial Modelling 3rd (FM3) is not a mere collection of recipes but rather topical introduction, explanation, and then direct technique.

If we can make a comparison with a "cookbook" then FM3 falls somewhere between "The Joy of Cooking" and "Mastering the Art of French Cooking." "Joy" combines chapters on technique, ingredients, and tools with dense pages of endless recipes, whereas "Mastering" emphasises technique and a few well-selected recipes.

The welcome new chapters cover bank valuation, the Black-Litterman approach to portfolio optimization, and Monte Carlo methods and applications to option pricing, and the previous 2nd edition's small chapter on using array functions and formulas has been expanded. The chapter on data downloads from YAHOO is also welcome, especially for those on a budget.

There is a single significant flaw in the work, which is excusable and redeemable. Far too often the discounting in the chapters is done over a flat interest rate curve. While the term structure of interest rates is covered, and historical term structures and parallel shifts and steepening and flattening is covered in isolation in a thorough chapter and with wonderful data files, the necessity and explicit connection of discounting from an appropriate yield curve is left implied and only mentioned in a few exercises. I would have preferred a "round up" chapter where each of the subjects treated (bond discounting, portfolio expected returns, options, etc.) under a yield curve with advanced models. Sure BLOOMBERG and REUTERS have these sort of things (often incorrectly) programmed, but students need to learn explicitly about them and do the exercise themselves to comprehend the importance of curve discounting.

The CD attached in the back of the book is alone worth the price, with over two score of models that are practical and adaptable for students and professionals alike. The files are stored and separated according to chapters and subject matter. Each file has logical progression of the concepts advanced in the book, and each separate sheet either stands alone or appropriately links to data and models on other sheets, so editing for your own purposes is a breeze.

For those who want to train themselves in Finance (not "personal finance") then I suggest reading Copeland, Weston, & Shastri's Financial Theory and Corporate Policy (4th Edition) and Brealey, Myers, and Marcus's "Corporate Finance" and "Investments" followed by working through FM3. Such a course would give any self-disciplined person the equivalent of a Masters of Science in Finance.

Full disclosure: I am thanked in the "Acknowledgements" for providing a few helpful comments on the second edition.
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105 of 112 people found the following review helpful
on April 12, 2008
Rather then comment extensively on the content of the book (as others have done rather well), I felt like I would pass this tip (which I wish I had known to prevent frustration). I feel that anyone without a working knowledge of Visual Basic, and manuevering around Excel should obtain the skill set with the well written technical sections. I would suggest starting with part VI introduction to Visual Basic (chapters 36-41) then moving on to Technical Consideration (chapters 29-35) and THEN moving onto the substantial matter of the first 4 parts. This will help keep you from getting frustrated while interacting with the software and allow you to focus on the concepts. Again this is only for individuals without a working knowledge of the platforms, if you do possess those skills then the above recommendation is a moot point.
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19 of 20 people found the following review helpful
VINE VOICEon July 16, 2009
There are different levels of financial modeling, and this book is excellent for the novice modeler. The author discusses how to create spreadsheet models of financial statements and then moves on to more advanced financial topics, such as mean-variance optimization and binomial trees.

An advantage of using this book is that it teaches you financial modeling using Excel, which most people have or have access to. This means that you can use most of the tools that are used in this book, and you can share your files with other people. If you use programs such as MATLAB or SAS, it is likely that you can only present the results of your analysis without sharing the programs or data. In Excel, all your data and calculations are available for everyone, which makes sharing much easier.

There are many interesting things that are taught in this book. An example of a neat trick you will learn in this book includes the use of the LINEST function and other regression-related functions. These functions are dynamic in that the results of the regression change when you change your data, unlike the use of the Analysis Toolpak's Regression feature which you have to re-run every time you make a change to your data.

In addition, for those that want to harness more of Excel's modeling power, the author includes sections with VBA codes. VBA codes allow the user to program and tell Excel how to perform tasks. For example, you can build your own function that can calculate option values rather than having to input or edit a formula repeatedly. More serious students should attempt to learn to program in VBA. For most purposes, an advanced modeler in Excel can create programs that would yield similar results to those of more powerful software like MATLAB.
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13 of 13 people found the following review helpful
on December 17, 2008
Professor Benninga's "Financial Modeling" is the best and most comprehensive book on financial modeling with excel available. For beginners in Finance they could start with another excellent book the "Principles of Finance with Excel" by the same author.
Professor Benninga is an authority on numerical methods in finance and financial engineering. The credit goes in making the sophisticated financial modelling look simple with excel so that any person with some background and interest in finance can work through it and understand the latest in theory and practice. Before i read this book, I had little idea that topics like event study, Black-Litterman approach, calculatng default adjusted expected Bond returns,Value at Risk (using monte carlo as well as bootstrapping) and option geeks can be so easily explained using excel. For readers who have little experience in higher level programming language, the Visual Basic Application would be a great way to get started.The book has a wealth of VBA programs which can be customized to one's needs. I yearned for having a way to download and manipulate the latest market data from yahoo or msn rather than having to update it manually (or through an excel add-in provided in microsoft site which has limited capabilities). The book uses VBA ways to download and process the raw data fro yahoo finance and MSN money. At the end of the last chapter of the book the author says that the "The sky is the limit". I agree with him completely, the sky is the limit with this book. For academics, this book can be used in an elective course in Finance for MBA or a masters level course in Finance or financial economics. I highly recommend the book to anyone interested in Financial modeling.
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28 of 32 people found the following review helpful
on February 15, 2008
This book is nonpareil: there's nothing presently on the market that can compare in coverage, lucidity, and pedagogical skill. This is a must-have for both MBA and MFE students. For portfolio theory, option theory, and the use of (naive) Monte Carlo methods for pricing exotic options, this book should be the first port of call. Also included in portfolio theory is an intelligible treatment of the Black-Litterman model -- the first I've seen that's clear to understand -- given with spreadsheet models (this alone justifies the price of the book). Eveything is done using Excel, and the last 300+ pages give a clear exposition of various features of this spreadsheet program, including macros and VBA.
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8 of 8 people found the following review helpful
on April 5, 2008
Professor Benninga's texts have consistently demonstrated an uncommon ease engaging the reader - well versed in not only theory and application, but also in the classroom, Benninga seems to anticipate student questions - providing thoughtful end-of-chapter questions and answers. Specifically, the Third Edition of "Financial Modeling" presents the theory and application of the Black-Litterman (BL) model - a lot of "well regarded" texts only show the naïve construction of the non-augmented covariance matrix - which provides little competitive advantage to the portfolio manager or researcher - while BL is non-trivial and though proxies for the views necessary to form a posterior covariance matrix are often tricky to obtain, the BL model is necessary to incorporate the views of the researcher or portfolio manager and for any modern portfolio theory treatment - the application of this theory in Excel is a priceless exercise. Additionally, his addition of the chapter 4, "Building a Financial Model" thoroughly addresses financial statement modeling and its related issues - the tracking of assumptions and the examination of their feasibility with a sensitivity analysis. Finally, his treatment of Monte Carlo methods, Option Greeks, Bank valuation and event studies are unparalleled - a lot of good econometric texts treat event studies but usually, the student has no way of seeing its full implementation - Benninga's excel implementation just brings clarity. Generally, Benninga's texts are gems for not only self-study (the included CD allows you to follow along with the text) but also for MBA/MS students requiring a clear exposition of theory and application.

Financial Modeling, 3rd Edition
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7 of 7 people found the following review helpful
on July 17, 2010
I purchased this book as a companion to another excellent book on Valuation by Prof. Damodaran. While the latter is a thorough non-nonsense exposition on the principles of asset valuation, Simon Beninga's book takes a different approach. There is very little classical finance theory however the book is heavy on techniques that describe the conception and construction of financial models using Excel. An intermediate to advanced level of Excel is recommended. The author provides several examples on how to dissect a problem and convert it into Excel inputs. He also provides a lot of templates on standard templates that would make an investment banker proud. There is some coverage of investments instruments like Black Scholes and Monte Carlo techniques, however the book does not go in too much depth in this area. The reader is referred to other specialized texts for this purpose. The section on Visual Basic programming was also a little light and assumes a fairly advanced user. Thos should not be the first book you pick up for learning VB programming.

The book is more of a desk reference and crystallizes key concepts and practical tips very well. I strongly recommend this for any current or aspiring finance professional.
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11 of 13 people found the following review helpful
on April 3, 2009
Benninga has managed to produce a manuscript that fully qualifies as both an excellent and easily-read text book as well as an outstanding reference manual. And don't let its size put you off. Of the nearly 1,200 pages, only 200 - 300 would serve as a comprehensive review of general financial modeling concepts. The remainder highlight the more esoteric aspects of modeling that would be of interest to analysts in specialized situations, as well as supporting skills such as Visual Basic.

This is in my opinion a required tool for anyone who has any involvement in financial analysis or modeling.
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7 of 8 people found the following review helpful
on March 13, 2008
The best quantitative finance book ever written! Dr. Benninga does a remarkable job of simplifying very complex subject matter. His Excel and VBA examples are easy to understand and presented very logically. I am not a programmer and have never used VBA, yet I was able to pick up the coding logic very quickly. You don't have to be a quatitative expert to read the book and like it. He writes in a "user friendly" fashion and the book covers plenty of fascinating subjects. Modern finance is mankind's greatest invention and Dr. Benninga's book makes it all understandable.
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3 of 3 people found the following review helpful
on September 16, 2008
I wish I had the opportunity to study modeling from this perspective while in school. Prof Benninga's insistence on taking the student from theory to application provides a unique perspective that is critical to a variety of functions in corporate finance.

I use this book on almost a daily basis to approach common financial decisions with a new level of quantative rigor.

Worth easily 10x its price. Do buy.
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