Financial Risk Management of
Insurance Enterprises
Review for First Exam
Finance 432
First Exam
Wednesday, February 27, 2008
10-11:20 am
215 David Kinley Hall
First Exam Details
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Exam is worth 30 points.
Approximately 15 questions.
Exam is open book, open note.
You will need a calculator.
You cannot share material with other students.
You cannot use a computer, cell phone or any
other device capable of communication.
• Test covers material from lectures 1-12 and
assignments 1-4.
• Exam tests your ability to perform calculations and
to explain financial risk management concepts.
How to Prepare for the First Exam
• Review lecture notes
• Review assignments and class projects to
make sure you know how to do calculations
• Review readings on topics you have not
mastered
• Practice explaining key terms used in class
to those not familiar with topic
– Friends (if not in this class)
– Parents
Tips for Taking the First Exam
• First answer all the questions you can
without relying extensively on your notes.
• Then work on the remaining questions if
time permits.
Pre-Exam Office Hours
Steve D’Arcy
311 Wohlers Hall
Monday, February 25
2-4 pm
Liang Zhang, Alfred Au
104 Surveying Building
Tuesday, February 26
4-5:30 pm
What You Need to Know for the
First Exam
• Why financial risk management is important
• The role of actuaries and financial economists
– Similarities
– Differences
• Financial market basics
– CAPM and APM
– Option pricing model
– Value-at-Risk, Tail VaR
• How insurers handle financial risk management
– Santomero and Babbel
– Cummins, Phillips and Smith
What You Need to Know for the
First Exam - continued
• Bond pricing and interest rates
– Forward interest rates
– Term structure theories
• Derivatives
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Forwards
Futures
Swaps
Options
• Interest rate options
– Credit derivatives
What You Need to Know for the
First Exam - continued
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Asset-Liability Management
Duration
Convexity
How cash flows can change with interest rates
– Assets
– Liabilities