Review
“Financial Modeling by Simon Benninga is an outstanding resource for teaching the essentials of finance to both undergraduates and masters students. It is comprehensive, lucid, and a highly useful resource in every financial modeler’s toolkit.” —Richard W. Roll, Professor of Management, and Japan Alumni Chair in International Finance, UCLA”I’ve learned a great deal from the first two editions of Simon Benninga’s Financial Modeling, and the Third Edition offers both new …
Buy Financial Modeling, 3rd Edition at Amazon
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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.
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.