FINA3220A Actuarial Models I ()

Second Term 2016-2017

Tuesday 2:30pm 4:15pm, Room 506, Wu Ho Man Yuen Building
Thursday 10:30am 12:15pm, Room 304, Wu Ho Man Yuen Building

Instructor: Professor Albert C.S. Wong Phone: 3943-7648

Office: Room 1211, Cheng Yu Tung Building E-mail: albertw@baf.cuhk.edu.hk
Office Hours: By appointment

Tutor: Miss Iris Au Phone: 3943-7840

Office: Room 1155, Cheng Yu Tung Building E-mail: irisau@baf.cuhk.edu.hk

Course Description

This is the first course in actuarial mathematics. This course develops the students knowledge of the
theoretical basis of actuarial models and the application of those models to insurance and other
financial risks. After completing the course, the students should be able to: (1) gain a deep knowledge
in survival distributions and life tables; (2) understand the basic present-value model; (3) apply the
present-value model to various life insurance and annuity products; (4) combine basic concepts to
determine premiums for general insurance contracts; (5) use spreadsheet software to perform actuarial
calculations. Together with FINA4210 and 4250, these courses prepare students to take the Exam
MLC Models for Life Contingencies of the Society of Actuaries.

The students should possess a strong background in interest theory and probability at the level of
FINA2210 and 2220.

Learning Outcomes

Related learning outcome of IFAA programme: Students will demonstrate skills in pricing and
financial management of insurance products (LO4.2).

After completing this course, the students should be able to:

A. Models for single life: understand key concepts concerning tabular or parametric survival
models.
a. Explain and interpret the survival models for a single life. Calculate and interpret standard
probability functions including survival and mortality probabilities, force of mortality, and
complete and curtate expectation of life.
b. Construct and interpret survival models for cohorts consisting of non-homogeneous
populations, for example, smokers and non-smokers or ultimate-and-select groups.
B. Present value random variables: perform calculations on the present value random variables
associated with benefits and expenses.
a. Calculate and interpret probabilities, means, percentiles and higher moments.
b. Calculate and interpret the effect of changes in underlying assumptions such as mortality
and interest.
C. Premium calculation: calculate with and explain premium-calculation methodologies such as the
equivalence principle, the portfolio-premium principle, and premiums determined by specified
profit objectives.
a. Calculate and interpret probabilities, means, percentiles and higher moments of random
variables associated with these premiums, including loss-at-issue random variables.
b. Perform the calculations for contracts associated with specified contingent cash flows
including non-interest-sensitive insurances, annuities and participating insurances.
D. Actuarial calculations using spreadsheet software.
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Course Content and Schedule

Week Chapter Topic items

#1 Survival Models The future lifetime random variables; the force of
Jan 10, 12 (Textbook Chapter 2) mortality; actuarial notation; mean and standard
#2 deviation of future life time random variables; curtate
Jan 17, 19 future lifetime
#3 Life Tables and Life tables; fractional age assumptions; national life
Jan 24, 26 Selection tables; survival models for life insurance
#4 (Textbook Chapter 3) policyholders; life insurance underwriting; select and
Feb 7, 9 ultimate survival models; notation and formulae for
select survival models; select life tables; comments
on heterogeneity in mortality; mortality trends
#5 Life Insurance Assumptions; valuation of insurance benefits; relating
Feb 14, 16 (Textbook Chapter 4) actuarial present values for continuous and discrete
#6 cases; variable insurance benefits; functions for select
Feb 21, 23 lives
#7
Feb 28, Mar 2
#8 Life Annuities Review of annuities-certain; life annuities payable
Mar 7, 9 (Textbook Chapter 5) with different payment frequencies; deferred
#9 annuities; guaranteed annuities; increasing annuities;
Mar 14, 16 evaluating annuity functions; numerical illustrations;
#10 functions for select lives
Mar 21
#10 Class Test (Closed book test based on Chapters 1 to 3; 20% of final marks;
Mar 23 time and venue to be announced)
#11 Premiums Assumptions; the present value of future loss random
Mar 28, 30 (Textbook Chapter 6) variable; the equivalence principle; gross premium;
#12 profit; the portfolio percentile premium principle;
Apr 6 extra risks
#13
Apr 11, 13
#14 Review
Apr 18, 20

Course Materials and Announcements

A course website has been set up in CUHK eLearning System. Students can download all the course
materials from this website. All course announcements will be made during lectures and through the
course website. In addition, video record of lectures will be made available.

Assessment Scheme

There will be one class test, one final examination and four to five assignments. The final grade
will be weighted as follows:

Task Nature Percentage

Assignments 30%
Class Test 20%
Final Examination 50%
Total 100%

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Textbook

Dickson, D., Hardy, M. and Waters, H. (2013). Actuarial Mathematics for Life Contingent Risks.
Cambridge University Press.

References

Bowers, N.L., Gerber, H.U., Hickman, J.C., Jones, D.A. and Nesbitt, C.J. (1997). Actuarial
Mathematics. The Society of Actuaries.
Cunningham, R., Herzog, T. and London, R.L. (2012). Models for Quantifying Risk. ACTEX
Publications.
Exam MLC Tables. The Society of Actuaries.
Hong Kong Assured Lives Mortality Study. The Actuarial Society of Hong Kong.
http://www.actuaries.org.hk/
Hong Kong Life Tables 2006-2041. Census and Statistics Department, HKSAR.
U.S. Decennial Life Tables. Centers for Disease Control and Prevention. http://www.cdc.gov.

Learning Activities

Lecture
In class Out class
4 hours/week 4 hours/week
M M

Feedback for Evaluations

Course Teaching Evaluation. To be conducted during the last two weeks of lectures.
Focus-group meeting.
E-mail. Feel free to send comments to the instructor via e-mail.
Performance in test and examination. Assessment of what has been achieved by the students.

Academic Honesty and Plagiarism

Attention is drawn to University policy and regulations on honesty in academic work, and to the
disciplinary guidelines and procedures applicable to breaches of such policy and regulations. Details
may be found at http://www.cuhk.edu.hk/policy/academichonesty/.