Mathematics 383, Actuarial Models II, Fall 2012

Illinois State University – Mathematics Department

Instructors

Classes Meet

Tuesdays and Thursdays 4:00-5:50 p.m. (with a ten minute break), in Stevenson Hall, room 120.

Office Hours

Office hours will be held Tuesdays and Thursdays 3:00-3:50 p.m., in Stevenson Hall room 313G, by Dr. Krzysztof Ostaszewski. Please ask for an appointment at other times, appointments with Dr. Krzysztof Ostaszewski should be be scheduled at: http://krzysio.acuityscheduling.com.

Textbooks

Notes for all topics with practice exercises will be posted as links next to dates of classes, see below, in the schedule of classes. You may use this book:

• Derivatives Markets, Second Edition, by McDonald, R.L., Addison-Wesley, Pearson Education, 2006,
but you are not required to. The publisher will put out a new edition of the book in early September 2012, in the middle of this semester, unfortunately. You can use either the old edition, or the new edition, and again, you are not required to purchase the book, you will receive complete study notes in the class, in the form of PDF files.

Objective

The objective of this class is to help you learn about mathematical models utilized in financial economics.These actuarial models form a key part of modern actuarial science. We will cover the entire contents of the Course MFE/3F professional actuarial examination. Information about this examination can be found at: http://www.beanactuary.org/exams/preliminary/?fa=financial-economics-exam.

Grading

There will be a total of six tests. Any of the comprehensive tests (as indicated in the schedule) can count as a final. Because there will be so many opportunities for testing and only the best four test scores will affect the class grade, no make-up tests will be offered. The final will count as 40% of your grade, and the best two of the remaining tests will count as 30% of your grade each. You will also receive up to 15% extra credit for the best of the remaining tests. The grading scale for undergraduate students will be as follows: 90% or better — A, 80% to 90% — B, 70% to 80% — C, 60% to 70% — D, below 60% — F. The grading scale for graduate students will be the same, but their score in the class will be multiplied by the factor of 0.9, to account for increased expectations of them, as they receive graduate credit for the class.

Important dates

Illinois State University withdrawal information for the Fall 2012 semester is given at this web site: http://www.registrar.ilstu.edu/registration/withdrawal/fall.shtml.

Disability concerns

Illinois State University provides a welcoming atmosphere for individuals with disabilities by assisting each in functioning independently within the University community and providing equal access and opportunity in accomplishing educational, professional and personal goals. Disability Concerns, a unit of the Student Affairs Division,  is the designated office to provide approved accommodation services for students, faculty, staff, and guests with disabilities. Disability Concerns obtains and maintains documentation of disability, certifies eligibility for services, determines reasonable accommodations, and develops plans for providing such accommodations. This is accomplished in a confidential manner to ensure equal opportunity for participation in all courses, programs, activities and employment offered by Illinois State. Please contact the Disability Concerns in Fell Hall room 350, tel.  309-438-5853 (Voice), 309-438-8620 (TTY) if you have needs that can be accommodate by that office.

Senior Portfolio

Mathematics Majors (any sequence): You are strongly encouraged to save all graded work from this class for your senior portfolio.

Schedule of classes

• Tuesday, August 21, 2012. Parity and Other Option Relationships (Derivatives Markets, Chapter 9). Class taught by Mr. Aaron Hillebrandt.
• Thursday, August 23, 2012. Parity and Other Option Relationships (Derivatives Markets, Chapter 9). Class taught by Mr. Aaron Hillebrandt.
• Tuesday, August 28, 2012. Parity and Other Option Relationships (Derivatives Markets, Chapter 9). Class taught by Mr. Aaron Hillebrandt.
  • Additional study material: Put-call parity charts.
• Thursday, August 30, 2012. Binomial Option Pricing I (Derivatives Markets, Chapter 10).
• Tuesday, September 4, 2012. Binomial Option Pricing I (Derivatives Markets, Chapter 10).
• Thursday, September 6, 2012. Binomial Option Pricing II (Derivatives Markets, Chapter 11).
• Tuesday, September 11, 2012. Binomial Option Pricing II (Derivatives Markets, Chapter 11).
• Thursday, September 13, 2012. The Black Scholes Formula (Derivatives Markets, Chapter 12). Class taught by Mr. Aaron Hillebrandt.
• Tuesday, September 18, 2012. The Black Scholes Formula (Derivatives Markets, Chapter 12). Class taught by Mr. Aaron Hillebrandt. Additional study material: Lecture on the Black-Scholes Formula (mp4 video).
• Thursday, September 20, 2012. Practice exercises for Test 1.
• Tuesday, September 25, 2012. Test No. 1, on the material covered through September 18, 2012.
• Thursday, September 27, 2012. Market-Making and Delta-Hedging (Derivatives Markets, Chapter 13). Class taught by Mr. Aaron Hillebrandt.
• Tuesday, October 2, 2012. Market-Making and Delta-Hedging (Derivatives Markets, Chapter 13). Class taught by Mr. Aaron Hillebrandt.
• Thursday, October 4, 2012. Exotic Options (Derivatives Markets, Chapter 14). Class taught by Mr. Aaron Hillebrandt.
• Tuesday, October 9, 2012. Exotic Options (Derivatives Markets, Chapter 14). Class taught by Mr. Aaron Hillebrandt.
• Thursday, October 11, 2012. The Lognormal distribution (Derivatives Markets, Chapter 18). Monte Carlo Valuation (Derivatives Markets, Chapter 19).
• Tuesday, October 16, 2012. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20). Class taught by Mr. Aaron Hillebrandt.
• Thursday, October 18, 2012. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20). Class taught by Mr. Aaron Hillebrandt.
• Tuesday, October 23, 2012. Test No. 2, on the material covered through October 18, 2012.
• Thursday, October 25, 2012. The Black-Scholes Equation (Derivatives Markets, Chapter 21).
• Tuesday, October 30, 2012. The Black-Scholes Equation (Derivatives Markets, Chapter 21).
• Thursday, November 1, 2012. Exotic Options II (Derivatives Markets, Chapter 22). Volatility (Derivatives Markets, Chapter 23).
• Tuesday, November 6, 2012. Interest Rate Models (Derivatives Markets, Chapter 24).
• Thursday, November 8, 2012. Interest Rate Models (Derivatives Markets, Chapter 24).
• Tuesday, November 13, 2012. Test No. 3, comprehensive. 
• Thursday, November 15, 2012. Markov Processes.
• Tuesday, November 27, 2012. Additional exercises.More exercises.
• Thursday, November 29, 2012. Even more exercises.
• Tuesday, December 4, 2012. Test No. 4, comprehensive.
• Thursday, December 6, 2012. Test No. 5, comprehensive.
• Tuesday, December 11, 2012, 8:00-10:00 p.m., in STV 120 (regular room). Test No. 6, comprehensive.

---

All information contained here is, to our best knowledge, correct, but it is merely a representation, and should not be considered to be any form of professional advice. This electronic publication should not be misconstrued as the official position of Illinois State University, or its Department of Mathematics. We are glad to provide as much information as possible here, but we kindly ask that in any decision related to matters listed here you seek additional counsel and information. Comments on this Home Page are welcome and should be sent to Dr. Krzysztof Ostaszewski  at his e-mail address: krzysio@ilstu.edu.