Page 86 - Handbook Bachelor Degree of Science Academic Session 20212022

Faculty of Science Handbook, Academic Session 2021/2022

SIQ3004 MATHEMATICS OF FINANCIAL
Portfolio theory: Mean-variance portfolio, diversification, DERIVATIVES
efficient frontier, optimal portfolio selection, efficient portfolio
identification.
Introduction to derivatives: Call and put options, forwards,
futures, put-call parity.
Models of asset returns: Single-index models, fitting a single
index model, multi-index models.
Binomial models: one-step model, arbitrage, upper and
lower bounds of options prices, construction of multi-step
Asset Pricing Model: Capital Asset Pricing Model, Arbitrage
Pricing Theory. binomial tree.
The Black-Scholes model: Pricing formula, options Greeks,
Efficient market hypothesis.
trading strategies, volatility.
Assessment:
Continuous Assessment: 40% Hedging: Market making, delta hedging, Black-Scholes
Final Examination: 60% partial differential equation, delta-gamma-theta
approximation.
References: Exotic options: Asian options, barrier options, compound
1. Francis, J. C., and Kim, D. (2013). Modern Portfolio
Theory: foundations, analysis, and new options, gap options, all-or-nothing options, exchange
developments. John Wiley & Sons. options.
2. Elton, E.J., Gruber, M.J., Brown, S.J., and Brownian motion and Itô’s lemma: Brownian motion, Itô’s
Goetzmann, W.N. (2014). Modern Portfolio Theory lemma, Sharpe ratio, martingale representation theorem,
and Investment Analysis, 9/E. John Wiley & Sons.
3. Bodie, Z., Kane, A., and Marcus, A. J. (2018).
Investments 11/E. McGraw-Hill/Irwin Term structure of interest rate: Vasicek model, Cox-
4. Joshi, M. S., & Paterson, J. M. (2013). Introduction to Ingersoll-Ross model, Black-Derman-Toy binomial tree.
Mathematical Portfolio Theory. Cambridge University Models for credit risk: Structural, reduced form and intensity
Press.
5. Bodie, Z., Merton, R.C., and Cleeton, D (2008). based models, Merton model, valuing credit risky bonds.
Financial Economics, 2/E. Prentice Hall.
Assessment:
Continuous Assessment: 40%
Final Examination: 60%
SIQ3003 ACTUARIAL MATHEMATICS II
References:
Reserves: fully continuous and discrete reserves, 1. McDonald, R.L. (2013). Derivatives markets, (3rd
semicontinuous reserves, prospective and retrospective ed), Pearson Education.
reserves, expense reserves, variance of loss, special
formulas, recursive formulas. 2. McDonald, R.L. (2009). Fundamentals of Derivative
Markets, Pearson Education.
3. Hull, J.C. (2018). Options, Futures and other
Markov Chains: discrete and continuous Markov chains, Derivatives (9th ed), Pearson.
Kolmogorov’s forward equations, premiums and reserves 4. Hull, J.C. (2014). Fundamentals of Futures and
using Markov chains, multiple-state models.
Options Markets (8th ed), Pearson.
5. Weishaus, A. (2012). ASM Study Manual for Exam
Multiple Decrement Models: discrete and continuous
decrement models, probability functions, fractional ages, MFE/Exam 3F: Financial Economics (8th ed), Society of
Actuaries.
multiple and associated single decrement tables, uniform
assumption.
SIQ3005 LIFE INSURANCE AND TAKAFUL
Multiple Life Models: joint life, last survivor and contingent
probabilities, moments and variance of multiple life models, Insurance products and unit-linked insurance; Group Life
insurance; Operation of a Life Insurance company:
multiple life insurances and annuities.
underwriting, claims, marketing and distribution methods;
Profit testing; Takaful insurance; Regulations: Insurance Act,
Assessment:
Continuous Assessment: 40% taxation and role of Bank Negara in Insurance Industry.
Final Examination: 60%
Assessment:
Continuous Assessment: 40%
References:
1. Bowers, N., Gerber, H., Hickman, J., Jones, D., Final Examination: 60%
Nesbitt, C. (1997). Actuarial mathematics, 2nd ed., References:
Society of Actuaries. 1. Fisher, Omar Clark (2013). A Takaful Primer: Basics
2. Dickson, D. C., Hardy, M. R., & Waters, H. R. (2020). of Islamic Insurance. Thomson Reuters.
Actuarial mathematics for life contingent risks (3rd
edition). Cambridge University Press. 2. Archer, S., Karim, R. A. A., & Nienhaus, V. (Eds.).
3. Cunningham, R. J. (2011). Models for quantifying (2011). Takaful Islamic Insurance: Concepts and
Regulatory Issues (Vol. 764). John Wiley & Sons.
risk. Actex Publications.
4. Promislow, S. D. (2011). Fundamentals of actuarial 3. Yusof, Mohd Fadzli (2006). Mengenali Takaful, IBS
mathematics. John Wiley & Sons. Buku Sdn Bhd.
4. Gonulal, S. O. (Ed.). (2012). Takaful and Mutual
Insurance: Alternative Approaches to Managing
Risks. World Bank Publications.
5. Muhammad Jamalul Alam (2015). Life Assurance.
1st Edition. The Malaysian Insurance Institute.
6. Azman Ismail (2015). Takaful. 1st Edition. The
Malaysia Insurance Institute.

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