Financial Modeling

Financial modelling is the task of building an abstract representation (a model) of a real-world financial situation. 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 modelling 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 behaviour of markets or agents into numerical predictions.