Lecturer: Dr C. Donnelly
To introduce the student to more advanced mathematical models of cashflows accumulated or discounted at interest, and to develop skill in applying these models to real financial contracts and transactions.
To introduce simple survival models and associated life tables and moments of cashflows.
This course builds on and extends the ideas contained in the related course F78AA Actuarial and Financial Mathematics A as well as introduces the core concepts of survival modelling essential for life insurance modelling and pricing.
In financial mathematics, the concepts of a continuously-payable cashflow and the force of interest will be considered, leading to a wider discussion of what is called the term-structure of interest rates and the yield curve. Rates of return can be random and we will see how to model and measure this risk. We will see how interest-rate risk and share-price risk can be managed through the use of Redington's immunisation theory, and through the no-arbitrage principle to price so-called forward contracts.
Life insurance is one of the core areas of actuarial science. We will see how to model the future lifetime of an individual can be modelled as a random variable. This gives an introduction to survival models and the life table. As an example, the payments under a life insurance contract are normally linked to the future date of death of an individual, so we need a survival model to help us to value these contracts.
We will study some of the functions belonging to (or describing) survival models. These functions are essential knowledge required for the third year courses in survival models and life insurance mathematics.
There will be a two-hour end-of-course examination, contributing 90% of the total mark. During the semester, there will be continuous assessment counting for 10% of the total mark.
If you have any problems or questions regarding the course, you are encouraged to contact the lecturer.
Further information and course materials are available on VISION.
Actuarial Mathematics and Statistics,
School of Mathematical and Computer Sciences ,
Heriot-Watt University, Edinburgh EH14 4AS, Scotland
Phone: +44 (0)131 451 3202, Fax +44 (0)131 451 3327 or Email firstname.lastname@example.org