MATHS 454: Mathematics of Investments  (4)

Syllabus

1.     Prerequisites:  MATHS 320 and MATHS 351 or permission of the department chair.

2.     Course Description:  Mathematical analysis and actuarial principles of investments and asset management. 

3.     Course Objectives:  The course will study the mathematics of investment analysis and management.  Students will learn about financial instruments and their risks and rewards.  Measures of risk and return as well as mathematical models of the tradeoffs between risk and return will be studied. Risk control techniques such as efficient diversification and hedging will be covered.  Students are expected to have a strong background in actuarial mathematics including the mathematics of finance and probability theory.

4.     Course Rationale:  Modern investment theory and practice rely extensively on mathematical models and tools.  Actuaries are expected to understand the principles of investment management and the relationships between invested assets and corresponding liabilities such as pension and insurance reserves. 

A portion of the material covered in this course is directly tested on the second of the professional examinations given by the Society of Actuaries and the Casualty Actuarial Society.  The material is tested more extensively of SOA exam six and CAS exam eight.

5.     Course Content:  Topics will include the risk and return characteristics of financial assets such as stocks, bonds, and derivatives; fundamental principles of modern portfolio theory; standard deviation of return as a measure of risk; risk reduction through diversification; the design of optimal portfolios; CAPM; single-index and multifactor models; APT; models of market efficiency; duration and convexity measures; valuation of derivatives; and valuation of financial instruments with embedded options.  Topics will be studied from the perspective of a student with a high level of mathematics education.

6.     Course Format:  This course will be taught using lectures, a textbook and supplementary materials, and class discussion. Projects will be assigned.  Knowledge of spreadsheet computer software will be helpful. 

7.     Methods of Evaluating Student Performance:  Student evaluation will be based on in-class exams and quizzes, homework, and individual or group projects.  The evaluation and weight of these components are at the discretion of the individual instructor.

8.      Evaluation of the Course:  The instructor of the course is evaluated by departmental student evaluations and peer evaluation.  The course is reviewed and revised periodically by the Departmental Undergraduate Programs Committee.

C.G. Dean, 2/ 2003; I. Livshits Spring 2006, M. Karls Fall 2006