Page 117 - handbook 20152016

Faculty of Science Handbook, Session 2015/2016

3. Joshi, M. S., & Paterson, J. M. (2013). Introduction to Brownian motion and Itô’s lemma: Brownian motion, Itô’s
Mathematical Portfolio Theory. Cambridge University lemma, Sharpe ratio, martingale representation theorem
Press.
4. Panjer, H. H. (1997). Financial Economics. Society of Term structure of interest rate: Vasicek model, Cox-
Actuaries Foundation. Ingersoll-Ross model, Black-Derman-Toy binomial tree

Models for credit risk: Structural, reduced form and intensity
SIQ3003 ACTUARIAL MATHEMATICS II based models, Merton model, valuing credit risky bonds

Reserves: fully continuous and discrete reserves, Assessment:
semicontinuous reserves, prospective and retrospective Continuous Assessment: 40%
reserves, expense reserves, variance of loss, special Final Examination: 60%
formulas, recursive formulas.
Medium of Instruction:
Markov Chains: discrete and continuous Markov chains, English
Kolmogorov’s forward equations, premiums and reserves
using Markov chains, multiple-state models. Humanity Skill:
CS3, CT3
Multiple Decrement Models: discrete and continuous
decrement models, probability functions, fractional ages, References:
multiple and associated single decrement tables, uniform 1. Broverman, S. A. (2010). Mathematics of investment
assumption. and credit, 5th Ed., Actex Publications.
2. Kellison, G. (2008). Theory of Interest, 3rd Ed.,
Multiple Life Models: joint life, last survivor and contingent McGraw-Hill.
probabilities, moments and variance of multiple life models, 3. McDonald, R. L. (2012). Derivatives markets, 3rd Ed.,
multiple life insurances and annuities. Prentice Hall.
4. McCutcheon, J.J., Scott W.F.(1989). Introduction to the
Unit-linked contracts and profit tests: Emerging costs, profit Mathematics of Finance, Butterworth-Heinemann.
testing for conventional and unit-linked contracts.

Assessment: SIQ3005 LIFE INSURANCE AND TAKAFUL
Continuous Assessment: 40%
Final Examination: 60% Insurance products and unit-linked insurance; Group Life
insurance; Operation of a Life Insurance company:
Medium of Instruction: underwriting, claims, marketing and distribution methods;
English Profit testing ; Takaful insurance; Regulations: Insurance
Act, taxation and role of Bank Negara.
Humanity Skill:
CS3, CT3 Assessment:
Continuous Assessment: 40%
References: Final Examination: 60%
1. Bowers, N., Gerber, H., Hickman, J., Jones, D.,
Nesbitt, C. (1997). Actuarial mathematics, 2nd ed., Medium of Instruction:
Society of Actuaries. English
2. Dickson, D. C., Hardy, M. R., & Waters, H. R. (2013).
Actuarial mathematics for life contingent risks. Humanity Skill:
Cambridge University Press. CS2, CT1, LL2
3. Cunningham, R. J. (2011). Models for quantifying risk.
Actex Publications. References:
4. Promislow, S. D. (2011). Fundamentals of actuarial 1. Fisher, Omar Clark (2013). A Takaful Primer: Basics of
mathematics. John Wiley & Sons. Islamic Insurance. Thomson Reuters.
2. Archer, S., Karim, R. A. A., & Nienhaus, V. (Eds.).
(2011). Takaful Islamic Insurance: Concepts and
Regulatory Issues (Vol. 764). John Wiley & Sons.
SIQ3004 MATHEMATICS OF FINANCIAL 3. Yusof, Mohd Fadzli (2006). Mengenali Takaful, IBS
DERIVATIVES Buku Sdn Bhd.
4. Gonulal, S. O. (Ed.). (2012). Takaful and Mutual
Introduction to derivatives: Call and put options, forwards, Insurance: Alternative Approaches to Managing Risks.
futures, put-call parity. World Bank Publications.

Binomial models: one-step model, arbitrage, upper and
lower bounds of options prices, construction of multi-step SIQ3006 RISK THEORY
binomial tree.
Loss distributions: Claim frequency and claim severity
The Black-Scholes model: Pricing formula, options Greeks, distributions, creating new distributions, parameter
trading strategies, volatility. estimation methods, goodness-of-fit tests, risk sharing
arrangements.
Hedging: Market making, delta hedging, Black-Scholes
partial differential equation, delta-gamma-theta Aggregate risk models: Individual risk models, collective
approximation risk models, reinsurance.

Exotic options: Asian options, barrier options, compound Run-off triangle: Chain ladder method, average cost per
options, gap options, all-or-nothing options, exchange claims method, Bornheutter-Ferguson method.
options.

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