Spring 2019  ACMA 340 D100
Financial Economics for Actuaries (3)
Class Number: 3485
Delivery Method: In Person
Overview

Course Times + Location:
Mo 8:30 AM – 10:20 AM
WMC 3510, BurnabyWe 8:30 AM – 9:20 AM
WMC 3250, Burnaby 
Exam Times + Location:
Feb 27, 2019
5:30 PM – 8:20 PM
WMC 3250, BurnabyApr 10, 2019
8:30 AM – 11:30 AM
AQ 5018, Burnaby

Instructor:
JeanFrancois Begin
jbegin@sfu.ca
778.782.4478
Office: SCK10548

Prerequisites:
ACMA 210 and STAT 285.
Description
CALENDAR DESCRIPTION:
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. Discretetime models: binomial models, multiperiod models. Continuoustime models: BlackScholesMerton model. Monte Carlo methods. Exotic options: Asian, barrier, gap options. Quantitative.
COURSE DETAILS:
Outline:
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 ShortSelling, Forward Contracts, Call Options, Put Options, Options as Insurance.
 Option Trading Strategies: Basic Insurance Strategies, PutCall 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.
 PutCall Parity: PutCall Parity, Generalized Parity and Exchange Options, Comparing Options.
 Binomial Option Pricing: OnePeriod Binomial Tree, Constructing a Binomial Tree, TwoPeriod Binomial Tree, The General Binomial Tree Model, Pricing Using Real Probabilities, American Options, Options on DividendPaying Stocks, Options on Other Assets, Alternative Binomial Trees.
 The BlackScholesMerton Model: Introduction to the BlackScholesMerton Formula, Relationship Between Binomial and BSM Models, Applying the Formula to Other Assets, Option Greeks, Option Elasticity, Profit Diagrams Before Maturity.
 MarketMaking and DeltaHedging: What Do MarketMakers Do, MarketMaker Risk, DeltaHedging, The Mathematics of DeltaHedging, The BSM Analysis.
 Introduction to Exotic Options: Asian Options, Barrier Options, Compound Options, Gap Options, Exchange Options.
 Market Efficiency, Behavioural Finance and Project Analysis: EfficientMarket Hypothesis, Behavioural Biases, Cognitive Behavioural Biases, Investment risk Measures, Advantages and Disadvantages of Risk Measures, Risk Analysis.
Grading
 Inclass Activities 5%
 Oral Presentation 5%
 Midterm 40%
 Final 50%
NOTES:
Above grading is subject to change
Materials
REQUIRED READING:
McDonald, R. L. (2012). Derivatives Markets (3rd edition). Pearson.
RECOMMENDED READING:
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: ContinuousTime 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:
Students requiring accommodations as a result of disability must contact the Centre for Accessible Learning 7787823112 or csdo@sfu.ca
Tutor Requests:
Students looking for a Tutor should visit http://www.stat.sfu.ca/teaching/needatutor.html. We accept no responsibility for the consequences of any actions taken related to tutors.
Registrar Notes:
SFU’s Academic Integrity web site http://www.sfu.ca/students/academicintegrity.html is filled with information on what is meant by academic dishonesty, where you can find resources to help with your studies and the consequences of cheating. Check out the site for more information and videos that help explain the issues in plain English.
Each student is responsible for his or her conduct as it affects the University community. Academic dishonesty, in whatever form, is ultimately destructive of the values of the University. Furthermore, it is unfair and discouraging to the majority of students who pursue their studies honestly. Scholarly integrity is required of all members of the University. http://www.sfu.ca/policies/gazette/student/s1001.html
ACADEMIC INTEGRITY: YOUR WORK, YOUR SUCCESS