When asked why they tackled Mount Everest, climbers typically reply “Because it was
there”. Our motivation for writing Advanced Modelling in Finance is for exactly the
opposite reason. There were then, and still are now, almost no books that give due
prominence to and explanation of the use of VBA functions within Excel. There is an
almost similar lack of books that capture the true vibrant spirit of numerical methods
in finance.
It is no longer true that spreadsheets such as Excel are inadequate tools in highly technical
and numerically demanding areas such as the valuation of financial derivatives. With
efficient code and VBA functions, calculations that were once the preserve of dedicated
packages and languages can now be done on a modern PC in Excel within seconds, if
not fractions of a second. By employing Excel and VBA, our purpose is to try to bring
clarity to an area that was previously covered with black boxes.
What started as an attempt to push back the boundaries of Excel through macros turned
into a full-scale expedition into the VBA language within Excel and then developed from
equities, through options and finally to cover bonds. Along the way we learned scores of
new Excel skills and a much greater understanding of the numerical methods implemented
across finance.
The genesis of the book came from material developed for the ‘Computer-Based Financial
Modelling’ elective on the MBA degree at London Business School. The part on
equities formed the basis for an executive course on ‘Equity Portfolio Management’ run
annually by the International Centre for Money and Banking in Geneva. The parts on
options and bonds comprise a course in ‘Numerical Methods’ on the MSc in Mathematical
Trading and Finance at City University Business School. The book is within the reach
of both students at the postgraduate level and those in the latter undergraduate years.