Page 168 - FINAL_HANDBOOK_20242025

Faculty of Science Handbook, Academic Session 2024/2025

Assessment: Ross model, Black-Derman-
Continuous Assessment: 40% Toy binomial tree.
Final Examination: 60%
Models for credit risk:
Structural, reduced form and
SIQ3004 intensity based models, Merton
MATHEMATICS OF model, valuing credit risky
FINANCIAL DERIVATIVES bonds.
Introduction to derivatives: Call Assessment:
and put options, forwards, Continuous Assessment: 40%
futures, put-call parity. Final Examination: 60%

Binomial models: one-step
model, arbitrage, upper and SIQ3005
lower bounds of options prices, LIFE INSURANCE AND
construction of multi-step TAKAFUL
binomial tree.
Insurance products and unit-
The Black-Scholes model: linked insurance; Group Life
Pricing formula, options insurance; Operation of a Life
Greeks, trading strategies, Insurance company:
volatility. underwriting, claims, marketing
and distribution methods; Profit
Hedging: Market making, delta testing; Takaful insurance;
hedging, Black-Scholes partial Regulations: Insurance Act,
differential equation, delta- taxation and role of Bank
gamma-theta approximation. Negara in Insurance Industry.
Exotic options: Asian options, Assessment:
barrier options, compound Continuous Assessment: 40%
options, gap options, all-or- Final Examination: 60%
nothing options, exchange
options.
SIQ3006
Brownian motion and Itô’s RISK THEORY
lemma: Brownian motion, Itô’s
lemma, Sharpe ratio, Loss distributions: Claim
martingale representation frequency and claim severity
theorem, distributions, creating new
distributions, parameter
Term structure of interest rate: estimation methods,
Vasicek model, Cox-Ingersoll-

168