Students

ACST3006 – Quantitative Asset and Liability Modelling 1

2024 – Session 1, In person-scheduled-weekday, North Ryde

General Information

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Unit convenor and teaching staff Unit convenor and teaching staff
Jiwook Jang
jiwook.jang@mq.edu.au
Credit points Credit points
10
Prerequisites Prerequisites
(ACST202 or ACST2002) and (STAT272 or STAT2372)
Corequisites Corequisites
Co-badged status Co-badged status
Unit description Unit description

This unit examines: rational expectations theory, rational choice theory, behavioural economics, properties of risk measures, risk and insurance companies, stochastic interest rate models, mean-variance portfolio theory, asset pricing models, single and multifactor returns models, binomial lattice models for option pricing and methods for calculating outstanding claims provisions in general insurance. Students gaining a credit average in both ACST3006 and ACST3007 (minimum mark of 60 on both units) will satisfy the requirements for exemption from the professional subject CM2 of the Actuaries Institute.

Important Academic Dates

Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates

Learning Outcomes

On successful completion of this unit, you will be able to:

  • ULO1: Apply decision making via utility functions, and describe rational expectations theory, rational choice theory, behavioural economics and three different forms of market efficiency.
  • ULO2: Employ the use of Capital Asset Pricing Model (CAPM), single/multi index models and Arbitrage Pricing Theory (APT) Model in asset pricing and analyse investment risk using various risk measures.
  • ULO3: Apply the binomial option pricing models to value European and American type options.
  • ULO4: Apply a stochastic approach to the theory of interest on the mean and variance of the accumulation of a sequence of payments to solve practical problems.
  • ULO5: Use various methods of run-off triangles for valuation and reserving of liabilities.

General Assessment Information

Late Assessment Submission Penalty (written assessments) 

Unless a Special Consideration request has been submitted and approved, a 5% penalty (of the total possible mark) will be applied each day a written assessment is not submitted, up until the 7th day (including weekends). After the 7th day, a grade of ‘0’ will be awarded even if the assessment is submitted. Submission time for all written assessments is set at 11.55pm. A 1-hour grace period is provided to students who experience a technical concern.  

For any late submissions of time-sensitive tasks, such as scheduled tests/exams, performance assessments/presentations, and/or scheduled practical assessments/labs, students need to submit an application for Special Consideration.

Assessment Tasks

Name Weighting Hurdle Due
Assignment 20% No Tuesday 26 March 11:55pm
Class Test 20% No Tuesday 14 May 12:00noon
Final Exam 60% No Examination Period

Assignment

Assessment Type 1: Quantitative analysis task
Indicative Time on Task 2: 20 hours
Due: Tuesday 26 March 11:55pm
Weighting: 20%

 

This is an individual assignment which focuses on problem solving using Excel spreadsheet.

 
On successful completion you will be able to:
  • Apply decision making via utility functions, and describe rational expectations theory, rational choice theory, behavioural economics and three different forms of market efficiency.
  • Employ the use of Capital Asset Pricing Model (CAPM), single/multi index models and Arbitrage Pricing Theory (APT) Model in asset pricing and analyse investment risk using various risk measures.

Class Test

Assessment Type 1: Quiz/Test
Indicative Time on Task 2: 10 hours
Due: Tuesday 14 May 12:00noon
Weighting: 20%

 

The test will be approximately 90 minutes, to be held during class time.

 
On successful completion you will be able to:
  • Apply decision making via utility functions, and describe rational expectations theory, rational choice theory, behavioural economics and three different forms of market efficiency.
  • Employ the use of Capital Asset Pricing Model (CAPM), single/multi index models and Arbitrage Pricing Theory (APT) Model in asset pricing and analyse investment risk using various risk measures.
  • Apply the binomial option pricing models to value European and American type options.
  • Apply a stochastic approach to the theory of interest on the mean and variance of the accumulation of a sequence of payments to solve practical problems.

Final Exam

Assessment Type 1: Examination
Indicative Time on Task 2: 28 hours
Due: Examination Period
Weighting: 60%

 

The final examination will be a three-hour written exam with ten minutes reading time, to be held during the University Examination period.

 
On successful completion you will be able to:
  • Apply decision making via utility functions, and describe rational expectations theory, rational choice theory, behavioural economics and three different forms of market efficiency.
  • Employ the use of Capital Asset Pricing Model (CAPM), single/multi index models and Arbitrage Pricing Theory (APT) Model in asset pricing and analyse investment risk using various risk measures.
  • Apply the binomial option pricing models to value European and American type options.
  • Apply a stochastic approach to the theory of interest on the mean and variance of the accumulation of a sequence of payments to solve practical problems.
  • Use various methods of run-off triangles for valuation and reserving of liabilities.

1 If you need help with your assignment, please contact:

  • the academic teaching staff in your unit for guidance in understanding or completing this type of assessment
  • the Writing Centre for academic skills support.

2 Indicative time-on-task is an estimate of the time required for completion of the assessment task and is subject to individual variation

Delivery and Resources

We refer to eStudent for class times.

 

There is no required textbook.

Unit materials are available for download from iLearn.

 

Recommended textbooks

• Investment Science; David Luenberger

• Choices, Values, and Frames; Amos Tversky and Daniel Kahneman

• Modern Portfolio Theory and Investment Analysis; Edwin J. Elton, Martin J. Gruber, Stephen J. Brown and William N. Goetzmann

• Investment Mathematics and Statistics; Andrew Adams, Della Bloomfield, Philip Booth and Peter England

• Options, Futures and Other Derivatives; John Hull

 

Optional ActEd material

• The ActEd CM2, that can be purchased directly from ActEd.

Unit Schedule

Week               Lecture Topics

1.                     Utility Theory, Decision making via utility functions

2.                     Stochastic dominance, Behavioural finance

3.                     Mean-Variance portfolio theory

4.                     The CAPM

5.                     Single/Multi index models, Arbitrage pricing theory (APT)

6.                     Measurements of investment risk

                        (Assignment due - Tuesday 26 March 11:55pm)

7.                     Options

8.                     Single/Multi period Binomial option pricing model

Semester Break

9.                     American option pricing via Binomial model

10.                   Runoff triangle

11.                   Class Test (Tuesday 14 May 12:00-2:00pm)

12.                   Stochastic interest rate models / Efficient market hypothesis

13.                   Revision

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At Macquarie, we believe academic integrity – honesty, respect, trust, responsibility, fairness and courage – is at the core of learning, teaching and research. We recognise that meeting the expectations required to complete your assessments can be challenging. So, we offer you a range of resources and services to help you reach your potential, including free online writing and maths support, academic skills development and wellbeing consultations.

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Unit information based on version 2024.02 of the Handbook