Financial
Modeling and Optimization-Course Syllabus
RM 392- unique # 04305
TTh 2:00-3:30, GSB 3.106
Fall 2011
Instructor
Office Phone: 471-9433
E-Mail: lasdon@mail.utexas.edu
Office: CBA North 5.244
Office
hours: TTh 3:30-5:00
or by appointment
Teaching
Assistant: TBA
TA
e-mail: TBA
TA Office: TBA
Course
web page: www.utexas.edu/courses/lasdon, and our web page on UT’s
“Blackboard” system.
Course Topics
1. The Process of Modeling
1.1 A six-stage framework
1.2 The craft of modeling
1.3 Visual modeling tools
1.4 Spreadsheet engineering
1.5 Analysis using spreadsheets
2. Financial Statement Modeling
2.1 Basics: income statements,
balance sheets, cash flow, etc
2.2 Applications: PPG
Corporation
3. Single Period Random Cash
Flows
3.1 Mean-variance portfolio theory
3.2 Capital asset pricing model
3.3 Variants of mean-variance
models: factor models, arbitrage pricing theory, model parameter estimation
3.4 Utility theory
4. Multiperiod models
4.1 Optimal portfolio growth
4.2 General investment
evaluation
5. Derivative Securities
5.1 Forwards, futures, and swaps
5.2 Models of asset dynamics
5.3 Basic options theory
6. Fixed income securities
Software Used
Learn
to use state of the art optimization and simulation software including the
following:
1. Excel and the Excel Solver
for optimization
2. @RISK for
3. Precision Tree for Decision
Tree analysis
4. The GAMS algebraic modeling
language.
This software, and the concepts underlying it, has
applications in all areas of business.
This
course is designed for MBA students, engineers, operations research students,
computer scientists, and others who are interested in quantitative methods and
their application to finance and investing. The level of mathematics used in
the course is fairly basic-algebra, elementary calculus, and basic probability
and statistics. You also need the
ability to think logically and systematically, but improving this ability is a
course goal.
Instructional Methods
The
basic approach is to learn by doing. We
will organize small learning groups, who work together to solve problems in
class. These problems are stated on the
plan for each class. Last year’s plans
are on the course website, and are a reasonable guide to those used in the
current year. We then discuss the
problem solutions. This is interspersed
with lecture segments when needed. There
will also be occasional outside speakers, who will explain how they use course
topics in their work.
Course Materials
The
text is “Financial Modeling” by Simon Benninga, MIT
Press, 3rd edition, 2008. It
is available at the Co-op or online and should be purchased by each student or
group of students. The author is a
professor in Finance at Wharton.
A second book, “Financial Models Using Simulation and Optimization III” by Wayne Winston, Palisade Corp (pub), 3rd edition, 2010, will provide many problems and cases, all framed as Excel spreadsheet models, provided on a CD-ROM which accompanies the book. The CD-ROM also includes full trial versions of the PALISADES Excel add-in software @RISK (for Monte Carlo simulation), PRECISION TREE (for decision tree analysis), and EVOLVER, a genetic algorithm for optimization that can solve non-smooth and discrete problems. This book and its 68 excellent examples provide problem templates and solution software which many students will be able to apply in their future careers. Although individual purchase is encouraged, one copy may be purchased and shared by each learning group. It is available at online vendors.
Grading
There
will be a midterm exam counting 30%, and a term project selected by the student
and approved by the instructor counting 30%.
Cases and homework count 40%.
Tentative Schedule of Topics
|
Class # |
Topic |
Text
Chapters and pages |
Other book
Chapters and pages |
|
Cases and
Exams |
|
1 |
Introduction, modeling framework |
|
|
Art of modeling Ch 1 |
|
|
2 |
Craft of modeling |
|
|
Art of modeling Ch 1, 2 |
Begin case 1 |
|
3 |
Excel and Spreadsheet Engineering |
|
|
Art of modeling Ch 3-6 |
|
|
4 |
Racquetball case, Financial statement modeling |
Ch 3 |
|
Art of modeling Ch 3-6 |
|
|
5 |
Case 1 presentations |
|
|
|
Case 1 due |
|
6 |
Financial statement modeling |
Ch 3 |
|
|
|
|
7 |
Financial statement modeling |
Ch 3 |
|
|
Begin case 2 |
|
8 |
Financial statement modeling |
Ch 3 |
|
|
|
|
9 |
Financial statement modeling |
Ch 4 |
|
|
|
|
10 |
Financial statement modeling |
Ch 4, 5 |
|
|
|
|
11 |
Asset allocation |
Ch 8 |
|
|
|
|
12 |
Asset allocation |
Ch 8 |
|
|
Case 2 due,begin Case 3 |
|
13 |
Asset allocation |
Ch 10 |
|
|
|
|
14 |
Asset allocation |
Ch 12 |
Winston Ch 10 |
|
|
|
15 |
Scenario approach and other risk measures Asset allocation |
|
Winston Ch 10 |
Quadratic programming, 3scen.xls |
Mid-term exam |
|
16 |
Case 3 presentations, asset allocation |
|
|
|
|
|
17 |
Factor Models Scenario approach and other risk measures |
|
Winston, Ch 47, 49, 50 |
|
|
|
18 |
Factor models Black-Litterman approach |
Ch 13 |
|
|
Case 3 due |
|
19 |
Black-Litterman approach, portfolios of oil and gas E&P projects |
|
|
Papers under readings/E&P project portfolios |
Begin case 4 |
|
20 |
Modeling oil and gas E&P projects and selecting project portfolios |
|
Winston Ch 19, 53 |
Papers under readings/E&P project portfolios |
|
|
21 |
Scenario generators for oil and gas projects |
|
Winston Ch 42 |
Papers under readings/E&P project portfolios |
|
|
22 |
Risk measures other than variance, Scenario generators for oil and gas projects |
|
|
Papers under readings/E&P project portfolios |
Case 4 due |
|
23 |
Project portfolios: scenario generation and portfolio optimization |
|
Winston Ch 43 |
Papers under readings/E&P project portfolios |
|
|
24 |
Project portfolio optimization, lognormal stock price models,VAR |
Ch 18 |
Winston Ch 44-47 |
Papers under readings/E&P project portfolios |
|
|
25 |
VAR, multiperiod portfolio models |
|
|
Papers under readings\multiperiod portfolio models |
|
|
26 |
Multiperiod models-scenario generation |
|
Winston Ch 44-46 |
Papers under readings\multiperiod portfolio models |
|
|
27 |
Multiperiod models-scenario generation |
|
Winston Ch 44-46 |
Papers under readings\multiperiod portfolio models |
|
|
28 |
Review, discussion of term projects |
|
|
|
Term projects due during finals week |
________________________________________________________________________
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provides upon request appropriate academic accommodations for qualified
students with disabilities. For more information, contact the Office of the
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