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MFE 3F: Financial Economics Segment of Society of Actuaries EXAM M/ 3F of CAS

This page has been upgraded and moved. An updated edition of this content including delta hedge, hedge P&L is now available at the New SOA MFE Exam 2012-2013 Prep page.

SOA MFE / CAS 3F Exam Prep Guide

SOA MFE 3F: INTEREST RATE MODELS

MFE 3F: 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.

MFE 3F: 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

MFE 3F Course: VALUATION OF DERIVATIVE SECURITIES

MFE 3F: 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.

MFE 3F: 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.

MFE 3F: SIMULATION

MFE 3F: Simulate lognormal stock prices.

MFE 3F: Use variance reduction techniques to accelerate convergence