Financial Modeling

AAA

DEFINITION of 'Financial Modeling'

The process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security. The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.

INVESTOPEDIA EXPLAINS 'Financial Modeling'

Financial models can be constructed in many ways, either by the use of computer software, or with a pen and paper. What's most important, however, is not the kind of user interface used, but the underlying logic that encompasses the model. A model, for example, can summarize investment management returns, such as the Sortino ratio, or it may help estimate market direction, such as the Fed model.

RELATED TERMS
  1. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  2. Decision Analysis - DA

    A systematic, quantitative and visual approach to addressing ...
  3. Local Volatility

    A model used in quantitative finance to calculate the unpredictability ...
  4. Stochastic Volatility - SV

    A statistical method in mathematical finance in which volatility ...
  5. Black Scholes Model

    A model of price variation over time of financial instruments ...
  6. Heath-Jarrow-Morton Model - HJM ...

    A model that applies forward rates to an existing term structure ...
Related Articles
  1. Markets

    Digging Into The Dividend Discount Model

    The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions.
  2. Professionals

    Get An Academic Finance Career

    Working nine months a year and earning a six-digit salary might seem like the high life, but these jobs are not easy to come by.
  3. Professionals

    Style Matters In Financial Modeling

    If you're looking to get a job as an analyst, you'll need to know how to work it.
  4. Credit & Loans

    The Tangled Web of Interest Rates, Mortgage Rates, And The Economy

    The article looks into the interwoven relationship between the economy, interest rates, and mortgage rates.
  5. Economics

    Why The Russian Economy Rises and Falls With Oil

    The Russian economy depends on profitable oil production to pay for the cost of government, prop up the ruble, and provide most of it exports revenue.
  6. Economics

    How Oil Prices Impact the U.S. Economy

    Now that the United States has increased oil production through shale oil and fracking, low oil prices can harm the U.S. oil industry and its workers.
  7. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  8. Economics

    Could Ukraine's Debt Crisis Destabilize The EU?

    A financial crisis in Ukraine could be a bigger threat to European security than the current financial crisis in Greece.
  9. Economics

    Venezuela Teeters On Edge As Oil Revenues Shrink

    Low oil prices have drastically revised the economic status quo -- dealing a destabilizing blow to oil-exporters like Venezuela due to falling oil revenue.
  10. Economics

    How Terrorism Affects Markets and the Economy

    Terrorism causes quantifiable short-term and long-term costs. After major terror attacks, markets tend to drop quickly but recover within a year.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center