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Mathematics 383, Actuarial Models II, Fall 2013

Illinois State University – Mathematics Department

Instructors

Mr. Aaron Hillebrandt, FCAS, MAAA
Property Casualty Actuary
COUNTRY Financial
1701 Towanda Avenue, P.O. Box 2100
Bloomington, IL 61702-2100
Telephone: 309-821-4618, Fax: 309-820-3030.
E-mail: aaron.hillebrandt@countryfinancial.com

Dr. Krzysztof Ostaszewski, FSA, CFA, MAAA
Actuarial Program Director
Office: Williams Hall room 334.
Telephone: 309-438-7226, Fax: 309-438-5866.
E-mail: krzysio@ilstu.edu

Classes Meet

Tuesdays and Thursdays 3:00-4:50 p.m. (with a ten minute break), in Stevenson Hall, room 229.

Office Hours

Office hours will be held Tuesdays and Thursdays 2:00-2:50 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., Pearson Series in Finance, 2006,

or this book

• Derivatives Markets, Third Edition, by McDonald, R.L., Pearson Series in Finance, 2013,
but you are not required to. The publisher’s site for the book is here.

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 10% 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 2013 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 20, 2013. Parity and Other Option Relationships (Derivatives Markets, Chapter 9).
  • Thursday, August 22, 2013. Parity and Other Option Relationships (Derivatives Markets, Chapter 9).
  • Tuesday, August 27, 2013. Parity and Other Option Relationships (Derivatives Markets, Chapter 9).
  • Thursday, August 29, 2013. Binomial Option Pricing I (Derivatives Markets, Chapter 10).
  • Tuesday, September 3, 2013. Binomial Option Pricing I (Derivatives Markets, Chapter 10).
  • Thursday, September 5, 2013. Binomial Option Pricing II (Derivatives Markets, Chapter 11).
  • Tuesday, September 10, 2013. Binomial Option Pricing II (Derivatives Markets, Chapter 11).
  • Thursday, September 12, 2013. The Black Scholes Formula (Derivatives Markets, Chapter 12).
  • Tuesday, September 17, 2013. The Black Scholes Formula (Derivatives Markets, Chapter 12).
    • Video lecture on the Black-Scholes Formula.
  • Thursday, September 19, 2013. Market-Making and Delta-Hedging (Derivatives Markets, Chapter 13). Class taught by Mr. Aaron Hillebrandt.
  • Tuesday, September 24, 2013. Test No. 1, on all material covered through September 17, 2013.
  • Thursday, September 26, 2013. Market-Making and Delta-Hedging (Derivatives Markets, Chapter 13). Class taught by Mr. Aaron Hillebrandt.
  • Tuesday, October 1, 2013. Exotic Options (Derivatives Markets, Chapter 14). Class taught by Mr. Aaron Hillebrandt.
  • Thursday, October 3, 2013. The Lognormal distribution (Review of some probability theory and Derivatives Markets, Chapter 18).
  • Tuesday, October 8, 2013. Exotic Options (Derivatives Markets, Chapter 14). Class taught by Mr. Aaron Hillebrandt.
  • Thursday, October 10, 2013. Monte Carlo Valuation (Derivatives Markets, Chapter 19). Class taught by Mr. Aaron Hillebrandt.
  • Tuesday, October 15, 2013. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20).
  • Thursday, October 17, 2013. Brownian Motion and Ito’s Lemma (Derivatives Markets, Chapter 20).
  • Tuesday, October 22, 2013. The Black-Scholes Equation (Derivatives Markets, 3rd Ed., Chapter 21). Class taught by Mr. Aaron Hillebrandt.
  • Thursday, October 24, 2013. The Black-Scholes Equation (Derivatives Markets, 3rd Ed., Chapter 21). Class taught by Mr. Aaron Hillebrandt.
  • Tuesday, October 29, 2013. Test No. 2, on all material covered through October 24, 2013.
  • Thursday, October 31, 2013. Exotic Options II (Derivatives Markets, 3rd Ed., Chapter 23). Class taught by Mr. Aaron Hillebrandt.
  • Tuesday, November 5, 2013. Volatility (Derivatives Markets, 3rd Ed., Chapter 24). Class taught by Mr. Aaron Hillebrandt.
  • Thursday, November 7, 2013. Interest Rate Models (Derivatives Markets, 3rd Ed., Chapter 25). Class taught by Mr. Aaron Hillebrandt.
  • Tuesday, November 12, 2013. Interest Rate Models (Derivatives Markets, 3rd Ed., Chapter 25). Class taught by Mr. Aaron Hillebrandt.
  • Thursday, November 14, 2013. Test No. 3, comprehensive.Tuesday, November 19, 2013. Markov Processes.
  • Thursday, November 21, 2013. Review.
  • Tuesday, December 3, 2013. Test No. 4, comprehensive.
  • Thursday, December 5, 2013. Test No. 5, comprehensive.Monday, December 9, 2013, 10:00 a.m. — 12:00 noon, 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.

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