MATH 573- Actuarial Models – Financial Economics (SOA Exam MFE)
Fall 2014
Instructor: Dr. Ewa Kubicka
Office: NS 219
Phone: 852-6021
e-mail: ewa@louisville.edu
Office Hours: TTh 3:00pm to 3:50pm
Lecture Time: TTh 5:30pm to 6:45pm Place: NS 128
Text: Derivative Markets by McDonald, R.L. (3rd edition)
Material: Covers the material for SOA Exam MFE:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
12.
Preliminary Information
Parity and Other Option Relationships
Binomial Option Pricing
The Black-Scholes Formula
Market Making and Delta-Hedging
Exotic Options
Lognormal Distribution
Monte Carlo Valuation
Brownian Motion and Ito’s Lemma
Black Scholes Equation
All-or-Nothing Options
Measurement of Volatility
Interest rate Models
Grading: Grades for this course will be based upon total points earned from three tests,
homeworks, and the final exam .
Three best tests
300 ( 100 points each test)
Homeworks
100 (collected at the beginning of a class only)
Final exam
200
Out of 600 points,
580 is required for A+,
500 is required for B+,
440 is required for C+,
380 is required for D+,
540
480
420
360
is required for A,
is required for B,
is required for C,
is required for D,
520 is required for A-,
460 is required for B-,
400 is required for C-,
and 340 is required for D-.
Approximate Schedule of Tests:
Test 1 – Thursday, September 18
Test2 – Thursday, October 09
Test 3 – Thursday, November 06
Test4 - Tuesday, November 25
FINAL EXAMINATION Thursday, December 11;
5:30PM – 8:00PM
The instructor reserves the right to make changes in the syllabus when necessary to meet learning objectives, to
compensate for missed classes, or for similar reasons.
Note: Concepts, principles and techniques needed for Exam MFE/3F are covered in the
reference listed below. Candidates and professional educators may use other
references, but candidates should be very familiar with the notation and terminology
used in the listed references.
Texts
± Models
Financial
SOA
Syllabus
forfor
MFE
exam: Economics*
Derivatives Markets (Third Edition), 2013, by McDonald, R.L.,
#
Chapter 9,
&KDSWHUH[FOXGLQJ³2SWLRQVRQ&RPPRGLWLHV´RQ pages 315 and 316),
Chapter 11, Sections 11.1±11.3, Appendices 11.A and 11.B,
Chapter 12, Sections 12.1±12.5, Appendix 12.A,
Chapter 13, including Appendix 13.B,
Chapter 14,
Chapter 18,
Chapter 19, Sections 19.1±19.5,
Chapter 20, Sections 20.1±20.3 (up to bXWH[FOXGLQJ³0RGHOLQJ&RUUHODWHG$VVHW
3ULFHV´RQSDJHV-H[FOXGLQJ³0XOWLYDULDWH,W{¶V/HPPD´RQ
pages 616-617), 20.5±XSWREXWH[FOXGLQJ³9DOXLQJD&ODLPRQ6aQb
on pages 621-622)
Chapter 21, Sections 21.1±H[FOXGLQJ³:KDW,IWhe Underlying Asset Is Not
DQ,QYHVWPHQW$VVHW´RQSDJHV±DQGH[FOXGLQJ³7KH
%DFNZDUG(TXDWLRQ´RQSDJHV±638, and excluding the last two
paragraphs of the section on page 639),
Chapter 23, Section 23.1 (but with only those definitions in Tables 23.1 and 23.2
that are relevant to Section 23.1),
Chapter 24, Sections 24.1 ± 24.2 (up to the second paragraph on page 721, but
including footnote 4 on page 721 and the top panel in Figure 24.3 on
page 723),
Chapter 25, Sections 25.1 ± 25.4 (up to the first paragraph on page 773), 25.5
H[FOXGLQJ³/,%250DUNHW0RGHO´RQSDJHV-783), Appendix 25.A
(this appendix contains only a reference to the following site for
download,
http://wps.aw.com/wps/media/objects/14728/15081864/appendices/McDo
nald-web-25-A.pdf ),
Appendix B.1, Appendix C.
Unless otherwise stated chapter appendices are not included in the required readings
from this text.
*Any textbook errata are included below.
Other Resources ± Models for Financial Economics
Exam MFE Formulas and Tables for paper/pencil
Formulas and Tables for CBT:
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,41"*,1&"+/%11#7
x 8$%&.('")$/.&1#,