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I am trying to forecast future revenue and expenses in a company. In the past I used moving average method but later I am more inclined to try to do that by using monte carlo simulation. I am wondering can i use simple random walk pattern for that like for stocks? I also read in here Forecasting Future Revenue Data For ROI Calculation that Vasichek approach is acceptable, but in there I am a bit vary because parameters a and b which should be chosen by the user, so my second question would be if there are any guidance how to chose a and b dependent on the industry or data (i.e common values)?

Thank you.

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Niki999
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Answer:

Yes, you can use Vasicek Model to forecast future revenue. From your question I gather you are using a simple application like EXCEL to do the forecasting. I am posting an article that I used to forecast interest rates in my EXCEL VBA Model. This article gives detailed explanation of the Vasicek model in relation to interest rate. All you have to do is replace the interest rate with revenue data and forecast the same. It gives simple use of EXCEL Solver to estimate the parameters of Vasicek model from the historical data of revenue of the company as an input to the model. See if this is what you are looking for. There are two methods to estimate the parameters, one is Ordinary Least Squares and the other is Maximum Likelihood Estimation. This article that I am posting uses MLE. If you need further help, let me know.

https://www.doria.fi/bitstream/handle/10024/43257/nbnfi-fe200901141021.pdf?sequence=3

Good Luck

Thanks

Satish

Satish Ramanathan
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  • Thank you. Your answer helped me a lot. Yes I do use simple tools like Excel. The reason for that is that 99% percent of people in my company can use it so it is an easy way if someone needs to change or add something. I feel that we should use something more sophisticated but that I must debate in the future with the right persons... – Niki999 Jul 08 '14 at 07:04
  • I accepted your answer but I could not vote as I do not have enough reputation (15 req). – Niki999 Jul 08 '14 at 11:08