Students

ACST8087 – Quantitative Asset and Liability Modelling 1

2026 – 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
STAT8310 and ACST8081
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 ACST8087 and ACST8088 (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.
  • ULO6: Extend the binomial option pricing models to value various types complex options.

General Assessment Information

Late Submission Penalties (written assessments)

If you submit your assessment late, 5% of the total possible marks will be deducted for each day (including weekends), up to 7 days. Submissions more than 7 days late will receive a mark of 0.

Example 1 (out of 100):

If you score 85/100 but submit 20 hours late, you will lose 5 marks and receive 80/100.

Example 2 (out of 30):

If you score 27/30 but submit 20 hours late, you will lose 1.5 marks and receive 25.5/30.

 

Extensions

Automatic short extension: Some assessments are eligible for automatic short extension. You can only apply for an automatic short extension before the due date.

 

Special Consideration: If you need more time due to serious issues and for any assessments that are not eligible for Short Extension, you must apply for Special Consideration. Need help? Review the Special Consideration page for further details.

Assessment Tasks

Name Weighting Hurdle Due Groupwork/Individual Short Extension AI assisted?
Professional practice: Portfolio theory report 20% No 30/03/2026 Individual Yes Open AI
Formal examination: Test 20% No Monday 11 May 3:00pm Individual No Observed
Formal examination 60% No The University Examination period Individual No Observed

Professional practice: Portfolio theory report

Assessment Type 1: Problem-based task
Indicative Time on Task 2: 20 hours
Due: 30/03/2026
Weighting: 20%
Groupwork/Individual: Individual
Short extension 3: Yes
AI assisted?: Open AI

The purpose of this assessment is for you to demonstrate your problem-solving skills for actuarial applications using MS Excel.

 

You will work with real-world data to calculate the set of possible portfolios, the capital allocation/market line (CML), the security market line (SML), and other relevant financial metrics.

 

Skills in focus:

  • Digital skills
  • Discipline knowledge
  • Work readiness
  • Critical thinking and problem solving
  • Communication skills 

 

Deliverable(s): PDF report and Excel worksheets.

Individual assessment
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.

Formal examination: Test

Assessment Type 1: Examination
Indicative Time on Task 2: 10 hours
Due: Monday 11 May 3:00pm
Weighting: 20%
Groupwork/Individual: Individual
Short extension 3: No
AI assisted?: Observed

The purpose of this assessment is for you to demonstrate techniques including identifying arbitrage opportunities, constructing replicating portfolios, applying the binomial option pricing model, evaluating option bounds, and analysing option combinations.

 

You will participate in a formal test during class time and respond to discipline related topics learnt in the semester.

 

Skills in focus:

  • Discipline knowledge
  • Critical thinking and problem solving

 

Deliverable(s): Class test

Individual assessment
On successful completion you will be able to:
  • 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.
  • Extend the binomial option pricing models to value various types complex options.

Formal examination

Assessment Type 1: Examination
Indicative Time on Task 2: 28 hours
Due: The University Examination period
Weighting: 60%
Groupwork/Individual: Individual
Short extension 3: No
AI assisted?: Observed

The purpose of this assessment is for you to formally demonstrate the expertise you have gained in this unit.

 

You will participate in a 3-hour exam with 10 minutes reading time held during the University Examination period. Important information about the exam will be made available on the unit iLearn page. You should also review the MQ Exams website for general tips.

 

Deliverable(s): Formal exam

Individual assessment
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.
  • Extend the binomial option pricing models to value various types complex options.

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.

3 An automatic short extension is available for some assessments. Apply through the Service Connect Portal.

Delivery and Resources

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 - Monday 30 March 11:55pm)

Semester Break

7.      Options

8.      Single/Multi period Binomial option pricing model

9.      American option pricing via Binomial model

10.     Runoff triangle

11.      Class Test (Monday 11 May 3:00pm)

12.      Stochastic interest rate models / Efficient market hypothesis

13.     Revision  

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Unit information based on version 2026.03 of the Handbook