Financial

Theory of money. Monetary Union. The theory of financial intermediation. Operational structure and operations of the Central Bank. Banking regulation. Other non-bank financial intermediaries. An introduction to the stock market. An introduction to the bond market. An introduction to money markets.

(1) Intro to cashflow modules and using them to describe financial instruments. (2) Time value of money, interest rates and force of interest: discounting single cashflows using simple and compound interest rates (compounded annually and more frequently). (3) Discounting and accumulating a series of cashflows using actuarial annuity functions such as annuity certain (payable in advance, in arrears, continuously), plus increasing and deferred annuities. (4) Equations of value and calculating loan schedules. (5) Project appraisal using Net Present Value, Intenal/Money-weighted/Linked/Internal rate of return etc. (6) Introduction to asset classes and simple derivative functions.

Portfolio theory; market efficiency; security analysis: equity, fixed income, and derivatives securities;portfolio management; portfolio performance.

Overview of Financial Management and Financial Environment, Review of Financial Arithmetic and Present Values, Investment Decisions, Project Appraisal Applications, Analysing Investment, Risk Portfolio, Theory, The Capital Asset, Pricing Model, Financing Decisions, Capital Structure, Dividend Decisions.

The course provides grounding in stochastic processes and their application. It also introduces survival models and provides some basic applications. The aims of this module are to: (i) describe the principles of actuarial modeling (ii) describe the general principles of stochastic processes (iii) define and apply a Markov chain and a Markov process (iv) introduce the concept of survival models.

Operation of simple forms of proportional and excess of loss reinsurance. MGFs of loss distributions and aggregate claim distributions. Distribution of claim amounts paid by the insurer in the presence of excesses and reinsurance. Experience rating system based on frequency, calculation of stationary distributions under the system. Introduction to the analysis of delay triangles, including the basic chain ladder method, inflation-adjusted chain ladder method, average cost per claim method, and the Bornhuetter-Ferguson method. Ruin theory for a risk model, defining the probability of ruin in infinite/finite and continuous/discrete time and explaining the cash-flow process for a risk.7

This module examines financial decision making in light of actual observed behaviour. It examines the use of heuristics and the role that biases play in financial decision making. How biases are identified and incorporated into the investment management process is examined. The question of whether government policy should be designed to accommodate biases in decision making is considered. The module also discusses anomalies which have been found in financial markets, and how psychology may explain these results.

Investment under uncertainty; the theory of choice; state-preference theory; portfolio theory; asset pricing models; performance evaluation; capital structure; efficient capital markets; theory and practice.

Law and finance, capital structure, dividend policy, IPOs, corporate ownership.

The course extends the principles taught in actuarial modelling to include the use of the Binomial and Poisson models for mortality modelling. The concept of graduation, including methods and statistical testing, is also covered. The aims of the module are: i. To understand the use of Binomial and Poisson models of mortality and their application in actuarial modelling. ii. To understand how to estimate transition intensities depending on age, both exactly or via the census approximation iii. Describe how to test crude estimates for consistency with a standard table or a set of graduated rates. iv. Describe the process of graduation v. Develop an appreciation of the application of predictive modelling and analytics beyond traditional actuarial work.

This module examines the theory and the practical operation of bond markets. The course can be broadly divided into six parts. Firstly, we closely examine and analyse the investment environment of bonds and money-market instruments. This includes bond pricing and yield analysis. In the second part we focus on the term structure of interest rates: the empirical properties and theorems and the derivation of the zero-coupon yield curve. Thirdly, we analyse the hedging of interest-rate risk with duration. In the fourth part, we focus on the investment strategies that include passive and active fixed-income portfolio management and portfolio performance measurement. In the fifth part we investigate methods to model the term structure of interest rates and in the last part we are concerned with securitisation, i.e. mortgage-backed securities and asset-backed securities.

1. STOCHASTIC PROCESSES: The Poisson process, the Wiener process; Simulation of stochastic processes; Properties of stochastic processes; OrnsteinUhlenbeck process

2. STOCHASTIC CALCULUS: Stochastic integrals; Stochastic differential equations; The Ito rule

3. INVESTMENT STRATEGIES: Self-financing portfolios; Average returns; Black-Scholes world; Optimal investment in the BS model; Diversification across assets

4. HEDGING STRATIGIES AND OPTION PRICING: The BS equation; The BS formula; The pricing kernel; Risk-neutral pricing; The theorem of Girsanov; Risk management

5. TERM STRUCTURE MODELS OF INTEREST RATES: Characteristics of a model for the term-structure of interest rates; The risk-neutral approach to the pricing of zerocoupon bonds and interest-rate derivatives for a general one-factor diffusion model for the risk-free rate of interest; State-price deflators to the pricing of zero-coupon bonds and interest-rate derivatives for a general one-factor diffusion model for the risk-free rate of interest; the Vasicek, Cox-Ingersoll-Ross and Hull-White models; Limitations of these one-factor models.

1. Causes of bubbles and financial crises

2. Effects of bubbles and crises on the financial system and economy

3. How policymakers respond to bubbles

4. The antidotes to bubbles and crises

5. Timing the market – how investors can ride bubbles and profit from crashes

6. Case studies of famous bubbles and crashes – to include Bitcoin, China bubble of 2015, Eurozone crisis, 2008 global financial crisis, dotcom mania, the Asian crisis, the Japanese bubble, 1987 stock market crash, Great Depression, railway mania, and South Sea bubble.