Illinois State University Mathematics Department

All class materials are available on Reggienet

**Instructor**s

• Dr. Krzysztof
Ostaszewski, FSA,
CERA,
FSAS, CFA, MAAA,
Actuarial Program
Director

Office: Stevenson Hall room 313G. Office telephone: 309-438-7226,
office fax: 309-438-5866. E-mail: krzysio@ilstu.edu

We will also have the following visiting instructor who will not
hold office hours:

• Dr. Wei Hao, FSA, CFA, MAAA, Actuary, State Farm Insurance Companies. E-mail: wei.hao.pc3n@statefarm.com.

Tuesdays and Thursdays 6:00-7:50 p.m. (with a ten minute break), in Stevenson Hall, room 325.

Office hours will be held Tuesdays 2:30 p.m.-- 3:50 p.m., in Stevenson Hall room 313G, by Dr. Krzysztof Ostaszewski. Please ask for an appointment at other times. Appointments with Dr. Krzysztof Ostaszewski should be scheduled at: http://smartURL.it/appointment.

**Textbooks**

There will be study
notes, practice exams, and optional readings for presentation in
class provided by Dr. Krzysztof
Ostaszewski in Reggienet.

The following textbooks are suggested, but not required:

*• Financial Risk
Management for Pension Plans* by Leslaw Gajek and Krzysztof
Ostaszewski, Elsevier
Science, 2004. This book is on reserve at the Milner Library at Illinois State University and on
reserve at the library of the Department of Mathematics.

*• Financial
Economics,* edited by Harry Panjer, published in 1998 by the
Actuarial
Foundation. This book is on reserve at the Milner Library at Illinois State University.

• Zvi Bodie, Alex Kane, and Alan J. Marcus, *Investments,
*10th edition, McGraw-Hill, 2014, ISBN 9780077861674.

• John Hull, *Options, Futures and Other Derivatives, *9th
Edition, Pearson, 2016, ISBN: 9780133456318.

Students can earn extra credit for making presentations in class and for discussions in class on advanced readings, mostly related to the Society of Actuaries Quantitative Finance and Investment Track Fellowship exams, and to the Casualty Actuarial Society Course 9 Examination on Financial Risk and Rate of Return. Some potential readings for presentation are provided in the class online platform, in Reggienet.

The objective of this class is to help you learn about mathematical models in finance and investments, as utilized in the management as well as financial supervision of insurance enterprises and other financial intermediaries.

There will be a total of six tests. Any of the comprehensive tests (as indicated in the schedule) can count as a final. Because there will be so many opportunities for testing and only the best four test scores will affect the class grade, no make-up tests will be offered. The final will count as 40% of your grade, and the best two of the remaining tests will count as 30% of your grade each. You will also receive up to 10% extra credit for the best two (each) of the remaining tests. The grading scale for will be as follows: 90% or better -- A, 80% to 90% -- B, 70% to 80% -- C, 60% to 70% -- D, below 60% -- F. Links to past professional actuarial examinations are provided below, and those professional examinations should serve as a guidance of what kind of material students can expect on the tests. However, the tests in this class will be quantitative only, no essay questions will be given. Even though questions will be quantitative only, students are encouraged to explain their work thoroughly. Students will also have an opportunity to earn extra creditby making presentations in class on the readings suggested in Reggienet or other readings from Fellowship level examninations of the Society of Actuaries or the Casualty Actuarial Society. Those presentations must be set well in advance with Dr. Ostaszewski, and presentations scheduled at the last minuted before the end of the semester may be denied.

**Important dates**

Illinois State University withdrawal information for the Fall 2019
semester is given at this web site: http://www.registrar.ilstu.edu/registration/withdrawal/fall.shtml.

Accommodations

Any student needing to arrange a reasonable accommodation
for a documented disability and/or medical/mental health condition
should contact Student
Access and Accommodation Service at 350 Fell Hall, (309)
438-5853, or visit the website at StudentAccess.IllinoisState.edu.

**No recording of this class is allowed**

Students may not photograph or use audio or video devices to
record classroom lectures or discussions or visual materials that
accompany them (e.g., lecture slides, whiteboard notes/equations).
Students with disabilities who need to record classroom lectures
or discussions must contact Student Access and Accommodation
Services to register, request and be approved for an
accommodation. Students who violate this policy may be subject to
both legal sanctions for violations of copyright law and
disciplinary action under the University’s Code of Student
Conduct.

**Schedule of classes**

- Tuesday, August 20, 2019. Overview of assets, liabilities and capital of financial intermediaries and regulatory supervision of them.
- Thursday, August 22, 2019. Financial Assets. Review of derivatives securities. Role of derivative securities in financial intermediaries.
- Tuesday, August 27, 2019. Brownian Motion and Black-Scholes Model. Black-Scholes-Equation.
- Thursday, August 29, 2019. Ito Processes, Ito's Lemma.Valuation of derivative securities.
- Tuesday, September 3, 2019. Interest rates derivatives and their modeling and relevance in management of an insurance firm.
- Thursday, September 5, 2019. Interest Rate Risk Management. Chapter 9 in first textbook. Class taught by Dr. Wei Hao.
- Tuesday, September 10, 2019. Interest Rate Risk Management. Chapter 9 in first textbook. Class taught by Dr. Wei Hao.
- Thusday, September 12, 2019. Interest Rate Risk Management. Chapter 9 in first textbook. Class taught by Dr. Wei Hao.
- Tuesday, September 17, 2019. Stochastic processes modeling interest rates.

- Thursday, September 19, 2019. Stochastic processes modeling interest rates.
- Tuesday, September 24, 2019. No-Arbitrage Pricing Theory.

- Thursday, September 26, 2019. No-Arbitrage Pricing Theory.

- Tuesday, October 1, 2019. No-Arbitrage Pricing Theory.

- Thursday, October 3, 2019. No-Arbitrage Pricing Theory.
- Tuesday, October 8, 2019. Test No. 1, on the material covered through October 3, 2019.
- Thursday, October 10, 2019, Insurance securitization. Derivative securities embedded in insurance contracts.
- Tuesday, October 15, 2019. Introduction to Enterprise Risk Management. Coherent Risk Measures.
- Thursday, October 17, 2019. Value at Risk. Conditional tail expectation.
- Tuesday, October 22, 2019. Theory of capital for insurance firms: Expected Policyholder Deficit.
- Thursday, October 24, 2019. Risk-Based Capital in the U.S. insurance regulation. Overview of Solvency II and Swiss Solvency Test.
- Tuesday, October 29, 2019. Test No. 2, on the material covered through October 24, 2019.
- Thursday, October 31. 2019. Equilibrium Pricing. Class taught by Dr. Wei Hao.
- Tuesday, November 5, 2019. Equilibrium Pricing. Class taught by Dr. Wei Hao.
- Thursday, November 7, 2019. Equilibrium Pricing. Class taught
by Dr. Wei Hao.

- Tuesday, November 12, 2019. Equilibrium Pricing. Class taught
by Dr. Wei Hao.

- Thursday, November 14, 2019. Test No. 3, on the material covered through November 12, 2019.
- Tuesday, November 19, 2019. Special presentation on
asset-liability management in practice at State Farm Insurance
by Dr. Wei Hao, FSA, CFA, MAAA. This class will be also be an event of the Actuarial
Program and will be held in Stevenson Hall room 101 (note the
unusual location).

- Thursday, November 21, 2019. Shortfall Constraints and risk
management for pension plans.

- Tuesday, December 3, 2019. Test No. 4, comprehensive.
- Thursday, December 5, 2019. Test No. 5, comprehensive.
- Tuesday, December 10, 2019, 5:30 p.m. (note the unusual time).
Test No. 6, comprehensive.