Mathematics 383, Actuarial Models II, Fall 2007

Illinois State University – Mathematics Department

Instructors

Classes Meet

Tuesdays and Thursdays 4:00-5:50 p.m. (with a ten minute break), in Williams Hall, room 313.

Office Hours

Office hours will be held Tuesdays and Thursdays 3:00-3:50 p.m. by Dr. Krzysztof Ostaszewski. Please ask for an appointment at other times.

Textbooks

• Derivatives Markets, Second Edition, by McDonald, R.L., Addison-Wesley, Pearson Education, 2006.
The following study notes from the Society of Actuaries will also be used:

• Multi-State Transition Models with Actuarial Applications by J. Daniel. This is the main reference on Markov Processes.

• Reprint of Chapter 5 readings from Introduction to Probability Models, Eighth Edition, 2006 by S.M. Ross. This is the main reference on Poisson Processes.

• Exam MFE Introductory Study Note.

• Exam MFE Tables.

• Some Remarks on “Derivatives Markets”, by E. Shiu.

• Derivatives Markets, Errata, 2006 Second Edition, first printing, by R. McDonald.
• Exam MFE Sample Questions and Solutions.

• May 2007 SOA Exam MFE and Solutions.

Objective

The objective of this class is to help you learn about Poisson and Markov stochastic processes and mathematical models utilized in financial economics.These actuarial models form a key part of modern actuarial science.

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 20% extra credit for the best of the remaining tests. The grading scale for undergraduate students will be as follows: 80% or better — A, 70% to 80% — B, 60% to 70% — C, 50% to 60% — D, below 50% — F. The grading scale for graduate students will be: 90% or better — A, 80% to 90% — B, 70% to 80% — C, 60% to 70% — D, below 60% — F.

Important dates

Illinois State University withdrawal information for the Fall 2007 semester is given at this web site: http://www.registrar.ilstu.edu/crd/withdrawal/withdrawfall.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.

Schedule of classes

• Tuesday, August 21, 2007. Markov Processes.
• Thursday, August 23, 2007. Markov Processes.
• Tuesday, August 28, 2007. Markov Processes.
• Thursday, August 30, 2007. Poisson Processes. Class taught by Mr. Ken Williams.
• Tuesday, September 4, 2007. Poisson Processes. Class taught by Mr. Ken Williams.
• Thursday, September 6, 2007. Poisson Processes. Class taught by Mr. Ken Williams.
• Tuesday, September 11, 2007. Test No. 1, on the material covered through September 6, 2007. 
• Thursday, September 13, 2007. Parity and Other Option Relationships (Derivatives Markets, Chapter 9). Class taught by Mr. Ken Williams.
• Tuesday, September 18, 2007. Parity and Other Option Relationships (Derivatives Markets, Chapter 9). Class taught by Mr. Ken Williams.
• Thursday, September 20, 2007. Parity and Other Option Relationships (Derivatives Markets, Chapter 9). Class taught by Mr. Ken Williams.
• Tuesday, September 25, 2007. Binomial Option Pricing (Derivatives Markets, Chapter 10).
• Thursday, September 27, 2007. Binomial Option Pricing (Derivatives Markets, Chapter 10).
• Tuesday, October 2, 2007. Binomial Option Pricing (Derivatives Markets, Chapter 11).
• Thursday, October 4, 2007. Binomial Option Pricing (Derivatives Markets, Chapter 11).
• Tuesday, October 9, 2007. The Black Scholes Formula (Derivatives Markets, Chapter 12).
• Thursday, October 11, 2007. Test No. 2, on the material covered through October 4, 2007. 
• Tuesday, October 16, 2007. The Black Scholes Formula (Derivatives Markets, Chapter 12).
• Thursday, October 18, 2007. Market-Making and Delta-Hedging (Derivatives Markets, Chapter 13).
• Tuesday, October 23, 2007. Market-Making and Delta-Hedging (Derivatives Markets, Chapter 13).
• Thursday, October 25, 2007. Exotic Options (Derivatives Markets, Chapter 14). Class taught by Mr. Ken Williams.
• Tuesday, October 30, 2007. Exotic Options (Derivatives Markets, Chapter 14). Class taught by Mr. Ken Williams.
• Thursday, November 1, 2007. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20). Class taught by Mr. Ken Williams.
• Tuesday, November 6, 2007. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20). Class taught by Mr. Ken Williams.
• Thursday, November 8, 2007. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20). Class taught by Mr. Ken Williams.
• Tuesday, November 13, 2007. Interest Rate Models (Derivatives Markets, Chapter 24).
• Thursday, November 15, 2007. Interest Rate Models (Derivatives Markets, Chapter 24).
• Tuesday, November 27, 2007. Interest Rate Models (Derivatives Markets, Chapter 24).
• Thursday, November 29, 2007. Test No. 3, comprehensive.
• Tuesday, December 4, 2007. Test No. 4, comprehensive.
• Thursday, December 6, 2007. Test No. 5, comprehensive.
• Friday, December 14, 2007. 10:00 a.m. — 12:00 noon. Test No. 6, comprehensive.

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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.