Spring 2019 - ACMA 340 D100
Financial Economics for Actuaries (3)
Class Number: 3485
Delivery Method: In Person
Course Times + Location:
Mo 8:30 AM – 10:20 AM
WMC 3510, Burnaby
We 8:30 AM – 9:20 AM
WMC 3250, Burnaby
Exam Times + Location:
Feb 27, 2019
5:30 PM – 8:20 PM
WMC 3250, Burnaby
Apr 10, 2019
8:30 AM – 11:30 AM
Prerequisites:ACMA 210 and STAT 285.
Actuarial models and their application to insurance and financial risks. Introductory derivatives: stocks, forwards, futures, swaps. Options: types, styles, parity and other relationships. Option strategies and risk management. Discrete-time models: binomial models, multi-period models. Continuous-time models: Black-Scholes-Merton model. Monte Carlo methods. Exotic options: Asian, barrier, gap options. Quantitative.
This course is an introduction to financial economics for actuaries. The topics covered include:
- Introduction to Derivatives: An Overview of Financial Markets, Role of Financial Markets, Use of Derivatives, Buying and Short-Selling, Forward Contracts, Call Options, Put Options, Options as Insurance.
- Option Trading Strategies: Basic Insurance Strategies, Put-Call Parity, Spreads and Collars, Speculating on Volatility.
- Forwards and Futures: Alternative Ways to Buy a Stock, Prepaid Forward Contracts on Stocks, Forward Contracts on Stocks, Futures Contracts, Currency Contracts, Commodity Forwards.
- Swaps: Understanding Swaps, Computing the Swap Rate in General, Interest Rate Swaps, Currency Swaps, Total Return Swaps.
- Put-Call Parity: Put-Call Parity, Generalized Parity and Exchange Options, Comparing Options.
- Binomial Option Pricing: One-Period Binomial Tree, Constructing a Binomial Tree, Two-Period Binomial Tree, The General Binomial Tree Model, Pricing Using Real Probabilities, American Options, Options on Dividend-Paying Stocks, Options on Other Assets, Alternative Binomial Trees.
- The Black-Scholes-Merton Model: Introduction to the Black-Scholes-Merton Formula, Relationship Between Binomial and BSM Models, Applying the Formula to Other Assets, Option Greeks, Option Elasticity, Profit Diagrams Before Maturity.
- Market-Making and Delta-Hedging: What Do Market-Makers Do, Market-Maker Risk, Delta-Hedging, The Mathematics of Delta-Hedging, The BSM Analysis.
- Introduction to Exotic Options: Asian Options, Barrier Options, Compound Options, Gap Options, Exchange Options.
- Market Efficiency, Behavioural Finance and Project Analysis: Efficient-Market Hypothesis, Behavioural Biases, Cognitive Behavioural Biases, Investment risk Measures, Advantages and Disadvantages of Risk Measures, Risk Analysis.
- In-class Activities 5%
- Oral Presentation 5%
- Midterm 40%
- Final 50%
Above grading is subject to change
McDonald, R. L. (2012). Derivatives Markets (3rd edition). Pearson.
Hull, J. C. (2015). Options, Futures, and Other Derivatives, 9th ed. Pearson.
Shreve, S. E. (2004). Stochastic Calculus for Finance I: Binomial Asset Pricing Model. Springer. Chapter 1
Shreve, S. E. (2004). Stochastic Calculus for Finance II: Continuous-Time Models. Springer. Chapter 7
Cvitanic, J., and Zapatero, F. (2004). Introduction to the Economics and Mathematics of Financial Markets. The MIT Press.
Department Undergraduate Notes:
Students with Disabilites:
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