Casualty Actuarial Society
Internet Course
Interest Rate Models
Stephen P. D’Arcy, FCAS
Department of Finance
University of Illinois at Urbana-Champaign
Kevin C. Ahlgrim, ASA
Department of Finance
Bradley University
Course Overview
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Introduction to the Course
The Use of Interest Rate Models in Insurance
Review of Finance Terminology
Interest Rate Basics
Historical Interest Rate Movements
Classification of Interest Rate Models
Tree Models of Interest Rates
Introduction to Stochastic Processes
Popular Interest Rate Models
Implementation Issues - 1
Implementation Issues - 2
Course Summary
Lecture 1
Introduction to the Course
• Course consists of:
– 12 PowerPoint Lectures on CD-ROM
– Class website
(http://www.casact.org/coneduc/oncourses/module4.htm)
• Discussion forum
• Problem sets
• Final exam
– Participation in discussion forum is essential to course
Textbooks and Readings
Textbooks:
Hull Options, Futures, and Other Derivatives
Fabozzi Valuation of Fixed Income Securities and Derivatives
Readings:
Ahlgrim excerpts from “The Effects of Multifactor Term
Structure Models on the Valuation of Insurance” U of I Thesis
2001
Ahlgrim, D’Arcy and Gorvett “Parameterizing Interest Rate
Models” CAS Forum Summer 1999
D’Arcy and Gorvett “The Effective Duration and Convexity
of Liabilities for Property-Liability Insurers Under Stochastic
Interest Rates” 2001
D’Arcy, Gorvett, Hettinger and Walling “Using the Public
Access DFA Model: A Case Study” CAS Forum Summer
1998
Advice for Participants
For each lecture:
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Skim through reading
Listen to lecture
Review reading in more depth
Try the problems
Participate in the discussion forum
Move on to the next lecture
Important Points
• You can proceed through the material at your own
pace
• But you need to set a reasonable schedule
• Don’t get bogged down
• Don’t get discouraged
• If you have questions or problems, get in touch
with us
– s-darcy@uiuc.edu
– kahlgrim@bradley.edu