2010 Course Handbook
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ACST305: Quantitative Methods of Asset Liability Management
This unit covers random walks, Brownian motion, martingales, stochastic calculus and Ito's lemma. The concept of forwards, futures and options and their pricing are introduced. The binomial lattice model is first used as a method of valuing the European option in discrete time steps, where arbitrage-free pricing framework is explained via replicating portfolios and risk-neutral probability measures. Next, the Black-Scholes option pricing model is studied, which values the European option in continuous time. The Greeks are introduced and dynamic hedging techniques are also shown. American and exotic option pricing are also covered. With the introduction of the relations among short rate, forward rate and default-free zero coupon bond price, this unit covers the term structure of interest rates and examines various models that are used in practice in this area. Credit risk (i.e., default risk) models based on firm-value and intensity-based approaches are examined to consider the defaultability of companies. This unit also examines: utility theory and different types of individuals; mean-variance portfolio theory; the Capital Asset Pricing Model; measures of investment risk; and the efficient market hypothesis. Students gaining a grade of credit or higher in this unit may apply for exemption from subject CT8 of the professional exams of the Institute of Actuaries of Australia.
| Credit Points: | 4 |
| Contact Hours: | 5 |
| When Offered: | D2 - Day; Offered in the second half-year |
| Staff Contact(s): | Actuarial Staff |
| Prerequisites: | |
| Corequisites: | |
| NCCW(s): | ACCG329, ACST306 |
| Unit Designation(s): | |
| Assessed As: | Graded |
| Offered By: | Department of Actuarial Studies |
Timetable Information
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