SOA 3F/MFE – Modelling Financial Economics Exam Guide

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The SOA 3F/MFE exam is a 3 hour long exam with no breaks in between. It consist of 30 multiple choice questions. MFE test theoretical basis of financial models and the application of those models to insurance and other financial risks. It is a little advanced level course and therefore a thorough knowledge of calculus, probability and interest theory with knowledge of risk management is assumed. Therefore, it is ideal that the candidate should appear for Exams P and FM prior to writing MFE.


There are two ways to write MFE:

1)    Computer Based Testing (CBT)

Since May 2011, Exam 3F/MFE has been administered using computer-based testing (CBT). Under CBT, it is not possible to schedule everyone to take the examination at the same time. As a result, each administration consists of multiple versions of the examination given over a period of several days. The examinations are constructed and scored using Item Response Theory (IRT). Under IRT, each operational item that appears on an examination has been calibrated for difficulty and other test statistics and the pass mark for each examination is determined before the examination is given. All versions of the examination are constructed to be of comparable difficulty to one another.

2)    Paper/Pencil

There is essentially no difference as far as difficulty is concerned between the two methods of appearing for exams. But the paper/pencil exam have a single date in a registration window, whereas, in CBT the candidate has a range of dates to choose from. Further details about the registrations can be found on the Society of Actuaries website.


MFE was initially part of Exam 3 but now Exam 3 has been broken down into two parts MFE (Model for Financial Economics) and MLC (Model for Life Contingencies). The names explain the basic differences between the two. The syllabus for MFE for July 2014 is not a lot different from the first MFE exam syllabus. Only the frequency of different course material appearing in different exams has changed.

Important Dates:

A candidate can appear for MFE thrice in a given year. MFE exams are scheduled to take place in March, July and November, however, the registration deadlines for all the exams are usually two months before the date of exams.

Exam MFE, Models for Financial Economics Dates









CBT in Quebec City




Paper & Pencil (selected sites)




Registration Deadline

Jan. 23

May 29



SOA is very precise about the calculators that can be used in the exam, so make sure you have the right one for your exams or you would not be allowed a calculator. Also bring with you a spare battery. A candidate can bring more than one of the approved calculators to the examination centre. The acceptable models are:

  • Texas Instruments BA–35,
  • Texas Instruments BA II Plus,
  • Texas Instruments BA II Plus Professional Edition,
  • Texas Instruments TI–30Xa
  • Texas Instruments  TI–30X II (IIS solar or IIB battery),
  • Texas Instruments TI–30X MultiView (XS Solar or XB Battery)

 Study Schedule:

It is essential that you start the preparation for your exams as early as possible. The standard time spend on preparation is 300 hours, but it may differ from person to person. For the mathematical questions, a candidate should try to solve as many questions as possible and even make “trial/mock” examination questions to gain a true understanding of the subject. It is also better to approach questions from more than one perspective as it provides a deeper understanding of the course.

 Sample Questions:

It is expected that a candidate has familiarized himself with the method of questioning present in MFE examination and for this purpose SOA has provided a number of sample examination questions. In addition to that SOA has also provided some past examination questions and their solutions.


The grades are released about six to eight weeks after the date of examinations and the released results are posted on the SOA website. CBT exam candidates will receive an unofficial pass/fail result at the conclusion of their exams. However, the official scores will be released along with paper/pencil exam. Bear in mind to still read the results very carefully at the conclusion of the exams. There has been very few instances of a different result so the unofficial pass/fail result is essentially the candidates result in most cases.

 The Pass Mark:

SOA uses a 0-10 grading scale. The grading is as under:




raw scores of at least 100 percent, but less than 110 percent of the pass mark


raw scores of at least 90 percent but less than 100 percent of the pass mark


raw scores that are less than 50 percent of the pass mark


raw scores of at least 140 percent of the pass mark

Study Guide:

The following free courses on cover various topics outlined in Society of Actuaries Learning Outcomes for Exam MFE, the Financial Economics Segment of Exam M and the CAS 3F exam. They provide supplementary prep materials for some of the more difficult concepts covered in the course.

As part of your preparation for your final attempt you have been looking for anything that can provide the extra edge for your MFE / 3F attempt. While the material below was not prepared keeping the SOA curriculum in mind it takes a hands on excel based approach in illustrating the many concepts covered in the SOA MFE /CAS 3F exams. Our hope is that this extra bit will clear the final muddle about those elusive Stochastic calculus, Continuous Time Finance, Option Greeks & Delta hedging concepts that you had been struggling with.

The links below covers interest rate models (CIR and BDT), Binomial Trees, Black Scholes Model, Pricing Derivative securities, differentiating between N(d1) and N(d2), exotic product and options, interpreting Greeks, Delta Hedging, investment and portfolio management concepts and other related topics.

Please note that the material below does not include treatment for :

  • Vasicek bond price model
  • Ito’s Lemma
  • Derivation of the Black Scholes equation
  • Theoretical background around the many theorems that build the foundation for Black Scholes Analysis

SOA Exam 3F/MFE Exam Prep  – Interest Rate models

SOA Exam 3F/MFE: Cox-Ingersoll-Ross interest rate model

We discuss the simplest of interest rate models, the Cox Ingersoll Ross interest rate simulator and review the model as well as the steps required in its calibration.

SOA Exam 3F/MFE: Black-Derman-Toy interest rate model

A slightly different application is used to illustrate the construction and calibration of the one factor no arbitrage Black, Derman and Toy (BDT) model

SOA Exam 3F/MFE Prep- Valuation of derivative securities

SOA Exam 3F/MFE: Derivative Products

The following courses provided a detailed introduction to Options and Derivatives/ Options pricing. This material includes discussions on the put call parity, Black-Scholes option pricing model, Greeks, Exotics, etc.

SOA Exam 3F/MFE: Calculate the value of European and American options using the binomial model

This course focuses on an alternative method of implementing a two-dimensional binomial tree compared to the traditional method of building a binomial tree in excel presented in most option pricing text books. The alternate approach is based on the techniques documented by Professor Mark Broadie at Columbia Business School as part of his coursework in Security Pricing and Computational Finance courses at Columbia University and allows us to extend a simple 3 step tree to a 50 – 100 step option pricing tree in a few minutes.

The course starts with pricing European calls and put options, followed by pricing American options and closes by reviewing option pricing for Knock out and Knock in (Sudden Death). We also review the special case of a down and in option.

Understanding Greeks & Delta Hedging

SOA Exam 3F/MFE: Interpret option Greeks & Delta Hedging

Monte Carlo Simulation SOA Exam 3F/MFE: Simulate lognormal stock prices.

SOA Exam 3F/MFE: Use variance reduction techniques to accelerate convergence

Risk Management Technique Exam 3F/MFE: Control risk using Delta-hedging

Other External Free Links

There are other free materials available online that might be of use to the candidate including the Rational Argumentator website.