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School of Mathematics

# MATH20951 - 2010/2011

General Information
• Title: Financial Mathematics for Actuarial Science 2
• Unit code: MATH20951
• Credit rating: 10
• Level: 2
• Pre-requisite units: MATH10951
• Co-requisite units: None
• This course unit may only be taken by students on the Actuarial Science and Mathematics degree programme
• School responsible: Mathematics
• Members of staff responsible: Prof. P. Glendinning
Page Contents
Other Resources
• Online course materials are available for this unit through Blackboard.

## Unit specification

### Aims

The unit aims to provide further instruction in simple financial transactions as used in actuarial science and the mathematics involved.

### Brief description

The unit covers methods of describing and assessing simple investments under a range of assumptions.

### Intended learning outcomes

On successful completion of this module students will be able to

• Retain knowledge and demonstrate understanding of the topics in this course unit. In particular :
• appreciate a range of investments and projects and assess their value under simple assumptions;
• understand how the no arbitrage assumption can be used;
• appreciate the effects of term structure and stochasticity for interest rate calculations.
• Carry out routine calculations on project and investment assessment, no arbitrage, immunization and and term effects.
• Have the basic knowledge and a set of tools and methods that can be used
• in subsequent course units;
• (together with MATH10951) to gain exemption from the Actuarial Profession CT1 examination;
• in a career involving mathematical and/or actuarial topics.

### Syllabus

This unit explores some further simple financial topics from a mathematical point of view.

1. The role of finance within actuarial science,
2. Appraisal and Comparison of Projects,
3. Description of Investments,
4. Compound Interest Problems : Fixed and uncertain income, Real Rates of interest, index linked bonds, Capital Gains Tax,
5. Arbitrage. The No-Arbitrage Assumption. Forward Contracts,
6. Term Structure of Interest Rates. Discrete and continuous time rates. Duratio, Convexity and Immunisation.
7. Stochastic Interest Rate Models.

### Textbooks

• Core Reading : Subject CT1, Financial Mathematics. Produced by the Actuarial Profession
• JJ McCutcheon and WF Scott, An Introduction to the Mathematics of Finance. Heinemann,
1986

### Learning and teaching processes

Two lectures per week in weeks 1-11 of semester 2. (22 lecture hours)
Small group tutorial in weeks 2-12. (11 tutorial hours)
Private Study (67 hours)

### Assessment

Coursework Assignment 1, 10%
Coursework Assignment 2, 10%
Examination at end of semester 2, 2 hours, 80%.

## Arrangements

Online course materials are available for this unit through Blackboard.