Mathematics 483, Mathematical Models in Finance and Investments, Fall 2015

Illinois State University Mathematics Department

Instructors

Classes Meet

Tuesdays and Thursdays 6:00-7:50 p.m. (with a ten minute break), in Stevenson Hall, room 310.

Office Hours

Office hours will be held Tuesdays and Thursdays 5:00 p.m.– 5:50 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 scheduled at: http://krzysio.acuityscheduling.com.

Textbooks

The following textbooks are suggested, but not required:

• Financial Risk Management for Pension Plans by Leslaw Gajek and Krzysztof Ostaszewski, Elsevier Science, 2004. This book is on reserve at the Milner Library at Illinois State University and on reserve at the library of the Department of Mathematics.

• Financial Economics, edited by Harry Panjer, published in 1998 by the Actuarial Foundation. This book is on reserve at the Milner Library at Illinois State University.

There will also be study notes, practice exams, and optional readings for presentation in class provided by Dr. Krzysztof Ostaszewski  in Reggienet.

Objective

The objective of this class is to help you learn about mathematical models in finance and investments, as utilized in the management as well as financial supervision of insurance enterprises and other financial intermediaries.

Grading

There will be a total of five 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 will be as follows: 90% or better — A, 80% to 90% — B, 70% to 80% — C, 60% to 70% — D, below 60% — F. Links to past professional actuarial examinations are provided below, and those professional examinations should serve as a guidance of what kind of material students can expect on the tests. However, the tests in this class will be quantitative only, no essay questions will be given. Even though questions will be quantitative only, students are encouraged to explain their work thoroughly. Students will also have an opportunity to earn extra creditby making presentations in class on the readings suggested in Reggienet or other readings from Fellowship level examninations of the Society of Actuaries or the Casualty Actuarial Society. Those presentations must be set well in advance with Dr. Ostaszewski, and presentations scheduled at the last minuted before the end of the semester may be denied.

Important dates

Illinois State University withdrawal information for the Fall 2014 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 University. Please contact the Disability Concerns in Fell Hall room 350, tel.  309-438-5853 (Voice), 309-438-8620 (TTY), web site: http://www.disabilityconcerns.ilstu.edu/, if you have needs that can be accommodate by that office.

Important dates

Illinois State University withdrawal information for the Fall 2015 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 University. Please contact the Disability Concerns in Fell Hall room 350, tel.  309-438-5853 (Voice), 309-438-8620 (TTY), web site: http://www.disabilityconcerns.ilstu.edu/, if you have needs that can be accommodate by that office.

Schedule of classes

• Tuesday, August 18, 2054. Overview of assets, liabilities and capital of financial intermediaries and regulatory supervision of them.
• Thursday, August 20, 2016. Review of derivatives securities, Ito’s Lemma, and Black-Scholes Equation. Role of derivative securities in financial intermediaries.
• Tuesday, August 25, 2015. Special presentation on catastrophe modeling by Ms. Minchong Mao, FCAS, ASA, MAAA, Catastrophe Modeling Manager at State Farm Insurance Companies. This class will be held in Stevenson Hall room 401 and it will be an event of the Actuarial Program.
• Thursday, August 27, 2015. Financial Assets. Class taught by Mr. Aaron Hillebrandt
• Tuesday, September 1, 2015. Derivative Securities. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA. Section 7.3 in first texbook.
• Thursday, September 3, 2015. Derivative Securities. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA. Section 7.3 in first texbook.
• Tuesday, September 8, 2015. Derivative Securities. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA. Section 7.3 in first texbook.
• Thusday, September 10, 2015. No-Arbitrage Pricing Theory. Sections 7.1.4, 7.1.5, 7.2 in first textbook.
• Tuesday, September 15, 2015. No-Arbitrage Pricing Theory. Sections 7.1.4, 7.1.5, 7.2 in first textbook.
• Thursday, September 17, 2015. No-Arbitrage Pricing Theory. Sections 7.1.4, 7.1.5, 7.2 in first textbook.
• Tuesday, September 22, 2015. Test No. 1, on the material covered through September 17, 2015.
• Thursday, September 24, 2015. Equilibrium Pricing. Sections 7.1.2, 7.1.3 in first textbook. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA.
• Tuesday, September 29, 2015. Equilibrium Pricing. Sections 7.1.2, 7.1.3 in first textbook. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA.
• Thursday, October 1, 2015. Equilibrium Pricing. Sections 7.1.2, 7.1.3 in first textbook. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA.
• Tuesday, October 6, 2015. Equilibrium Pricing. Sections 7.1.2, 7.1.3 in first textbook. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA. Mr. Hillebrandt may not be available on this day, and then Dr. Ostaszewski will teach the class.
• Thursday, October 8, 2015. Interest Rate Risk Management. Chapter 9 in first textbook. Class taught by Dr. Wei Hao, FSA, CFA, MAAA.
• Tuesday, October 13, 2015. Test No. 2, on the material covered through October 6, 2015.
• Thursday, October 15, 2015. Interest Rate Risk Management. Chapter 9 in first textbook. Class taught by Dr. Wei Hao, FSA, CFA, MAAA.
• Tuesday, October 20, 2015. Interest Rate Risk Management. Chapter 9 in first textbook. Class taught by Dr. Wei Hao, FSA, CFA, MAAA..
• Thursday, October 22, 2015. Options and Other Derivatives. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA. Some time from October 27, 2015 class is reallocated to this class.
• Tuesday, October 27, 2015. The time of this class meeting is reallocated to the class just before and after. This class will be dedicated only to optional student presentatuions of readings (for extra credit).
• Thursday, October 29. 2015. Options and Other Derivatives. Class taught by Mr. Aaron Hillebrandt, FCAS, MAAA. Some time from October 27, 2015 class is reallocated to this class.
• Tuesday, November 3, 2015. Insurance securitization.
• Thursday, November 5, 2015. Introduction to Enterprise Risk Management.
• Tuesday, November 10, 2015. Value at Risk. Risk-Based Capital in the U.S. insurance regulation.
• Thursday, November 12, 2015. Theory of capital for insurance firms: Expected Policyholder Deficit. Coherent Risk Measures.
• Tuesday, November 17, 2015. Overview of Solvency II and Swiss Solvency Test. Shortfall Constraints.
• Thursday, November 19, 2015. Special presentation on asset-liability management in practice at State Farm Insurance by Dr. Wei Hao, FSA, CFA, MAAA.This class will be held in Stevenson Hall room 401 and it will be an event of the Actuarial Program.
• Tuesday, December 1, 2015. Test No. 3, comprehensive.
• Thursday, December 3, 2015. Test No. 4, comprehensive.
• Tuesday, December 8, 2015, 5:30 — 7:30 p.m., Test No. 5, 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.