Financial Mathematics - Theory of Interest & Cashflow Models

By MJ the Fellow Actuary

This course requires no prior knowledge on financial concepts and we will go through the main financial instruments one at a time. We will also look at the Time Value of Money, the Theory of Interest Rates and the Discounted Cash Flow Model. This is an introductory course for people who want to pursue careers in Actuarial Science, CFA, FRM, etc. A mathematical background will be advantageous.

• Section 1

  • What is Finance and Why do we have finance?

  • What are Interest and Inflation Rates?

  • Why are Financial Transactions complicated?

• Section 2

  • Introduction to Financial Instruments

  • Zero Coupon Bond

  • Fixed Interest Security

  • Index Linked Security

  • Equity

  • Annuity

  • Insurance Products

• Section 3

  • Theory of Interest - Basic

  • Power of Interest Rates

  • Discount Rates

  • Basic Actuarial Notation

• Section 4

  • Theory of Interest - Advanced

  • Money Rates vs Real Rates

  • Nominal Rates vs Effective Rates

  • Force of Interest

  • Force of Interest as a Function of time

• Section 5

  • Actuarial Notation

  • Discounting Factor

  • Annuity Certain

  • Annuity in Advance

  • Deferred Annuity

  • Annuities payable pthly

  • Annuities payable continuously

  • Perpetuities

  • Increasing Annuities

• Section 6

  • Term Structure of interest rates

  • Spot Rates

  • Forward Rates

  • Theories on Yield Curves

  • Yield to Maturity

  • Par Yield

  • Immunisation

• Section 7

  • Equation of Value

  • Linear Interpolation

• Section 8

  • Loan Schedules

• Section 9

  • Project Appraisal

• Section 10

  • Stochastic Interest Rate Models

  • Lognormal Interest Rate Models

  • Single Factor Models

    • Ho-Lee

    • Vasicek

    • Hull-white

    • Cox-Ingress-Ross

• Section 11

  • Exam Questions