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Financial modeling is the task of building an abstract representation (a model) of a real world financial situation. [1] This is a mathematical model designed to represent (a simplified version of) the performance of a financial asset or portfolio of a business, project, or any other investment. Typically, then, financial modeling is understood ...
Essentially, the Monte Carlo method solves a problem by directly simulating the underlying (physical) process and then calculating the (average) result of the process. [1] This very general approach is valid in areas such as physics, chemistry, computer science etc. In finance, the Monte Carlo method is used to simulate the various sources of ...
The top curve shows the tax shield gains of debt financing, while the bottom curve includes that minus the costs of bankruptcy. The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes ...
LIBOR market model. The LIBOR market model, also known as the BGM Model (Brace Gatarek Musiela Model, in reference to the names of some of the inventors) is a financial model of interest rates. [1] It is used for pricing interest rate derivatives, especially exotic derivatives like Bermudan swaptions, ratchet caps and floors, target redemption ...
The Brownian motion models for financial markets are based on the work of Robert C. Merton and Paul A. Samuelson, as extensions to the one-period market models of Harold Markowitz and William F. Sharpe, and are concerned with defining the concepts of financial assets and markets, portfolios, gains and wealth in terms of continuous-time stochastic processes.
GASB 34 is a financial accounting standard issued by the Governmental Accounting Standards Board in the United States . GASB 34 provides a comprehensive framework for financial reporting with the objective of making annual reports easier to understand and more useful to the people who rely upon the financial condition contained therein.
The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock. The model has been developed by William Sharpe in 1963 and is commonly used in the finance industry. Mathematically the SIM is expressed as: where: These equations show that the stock return is influenced by the market (beta), has a ...
Financial risk management is the practice of protecting economic value in a firm by managing exposure to financial risk - principally operational risk, credit risk and market risk, with more specific variants as listed aside. As for risk management more generally, financial risk management requires identifying the sources of risk, measuring ...