Mastering Financial Modelling in Microsoft Excel 3rd edn, 3rd Edition

20

Optimisation

Introduction

Elements of optimisation models

Linear programming

Margin maximisation

Pensions

Summary

INTRODUCTION

Earlier chapters in this book use Solver to search for answers to problems by deriving the inputs needed to produce a particular answer. This chapter introduces a number of examples of optimisation and targeting. Excel uses the logic of the model to work backwards and performs ‘reverse what-if’. You could of course enter different inputs to a cell yourself and converge gradually on a solution, but Excel is usually faster! It is of course important that the model is coded correctly according to the design method, for example:

• no mixed formulas;
• no hard coded cells;
• consistent coding;
• logical layout with split ...