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Faculty of Science Handbook, Academic Session 2025/2026
Markov Chains: discrete and continuous Term structure of interest rate: Vasicek
Markov chains, Kolmogorov’s forward model, Cox-Ingersoll-Ross model, Black-
equations, premiums and reserves using Derman-Toy binomial tree.
Markov chains, multiple-state models.
Models for credit risk: Structural, reduced
Multiple Decrement Models: discrete and form and intensity based models, Merton
continuous decrement models, probability model, valuing credit risky bonds.
functions, fractional ages, multiple and
associated single decrement tables, Assessment:
uniform assumption. Continuous Assessment: 40%
Summative Assessment: 60%
Multiple Life Models: joint life, last survivor
and contingent probabilities, moments and SIQ3005
variance of multiple life models, multiple LIFE INSURANCE AND TAKAFUL
life insurances and annuities.
Insurance products and unit-linked
Assessment: insurance; Group Life insurance; Operation
Continuous Assessment: 40% of a Life Insurance company: underwriting,
Summative Assessment: 60% claims, marketing and distribution
methods; Profit testing; Takaful insurance;
SIQ3004 Regulations: Insurance Act, taxation and
MATHEMATICS OF FINANCIAL role of Bank Negara in Insurance Industry.
DERIVATIVES
Assessment:
Introduction to derivatives: Call and put Continuous Assessment: 40%
options, forwards, futures, put-call parity. Summative Assessment: 60%
Binomial models: one-step model, SIQ3006
arbitrage, upper and lower bounds of RISK THEORY
options prices, construction of multi-step
binomial tree. Loss distributions: Claim frequency and
claim severity distributions, creating new
The Black-Scholes model: Pricing formula, distributions, parameter estimation
options Greeks, trading strategies, methods, goodness-of-fit tests, risk sharing
volatility. arrangements.
Aggregate risk models: Individual risk
Hedging: Market making, delta hedging, models, collective risk models, reinsurance.
Black-Scholes partial differential equation,
delta-gamma-theta approximation. Run-off triangle: Chain ladder method,
average cost per claims method,
Exotic options: Asian options, barrier Bornheutter-Ferguson method.
options, compound options, gap options,
all-or-nothing options, exchange options. Credibility theory: Bayesian credibility
methods, credibility premium formula,
Brownian motion and Itô’s lemma: empirical Bayes credibility theory.
Brownian motion, Itô’s lemma, Sharpe
ratio, martingale representation theorem,
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