Financial modeling

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 to mean an exercise in either asset pricing or corporate finance, of a quantitative nature. It is about translating a set of hypotheses about the behavior of markets or agents into numerical predictions.^[2] At the same time, "financial modeling" is a general term that means different things to different users; the reference usually relates either to accounting and corporate finance applications or to quantitative finance applications.

^ Investopedia Staff (2020). "Financial Modeling".
^ Low, R.K.Y.; Tan, E. (2016). "The Role of Analysts' Forecasts in the Momentum Effect" (PDF). International Review of Financial Analysis. 48: 67–84. doi:10.1016/j.irfa.2016.09.007.

[iop-1] Investopedia Staff (2020). "Financial Modeling".

[sciencedirect.com-2] Low, R.K.Y.; Tan, E. (2016). "The Role of Analysts' Forecasts in the Momentum Effect" (PDF). International Review of Financial Analysis. 48: 67–84. doi:10.1016/j.irfa.2016.09.007.

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