Math 497FM Course Info
Course Meets: TTh 2:30-3:45 in LGRT 204. Check with Spire for changes.
Michael Sullivan, LGRT 1323G, 545-1909
Office Hours: Weds 10-11 and by appointment, and Thurs 9:45-10:45.
You can also try to see me when I staff the the calculus center (Tuesday 11-12)
but priority is for calculus students.
There will be extra hours and/or reviews before the exams.
Prerequisites: Math 131, 132.
Credit: 3 credit hours
ASM Study Manual for Exam FM/Exam 2, Financial Mathematics and Financial Economics," 10th or later, by
Harold Cherry and Rick Gorvett.
Latest edition can be purchased at
Derivatives Markets (Second Edition), 2006, by McDonald. This text
is strongly recommended for those without prior exposure to options,
as well as those students going on to take the actuarial exam MFE.
This book is on reserve at DuBois Library.
Another relevant text, Samuel Brovermann's
``Interest Theory" book, is also on reserve at DuBois Library.
Any calculator accepted by the Society of Actuaries (SOA)
here for a list. I will be working with the TI BA II Plus calculator.
(TI = Texas Instruments and BA = Business Analyst.)
Here is a
on some of the calculator functions for TI BA II Plus.
Bring your calculator to every class.
This course serves as a preparation for SOA's first actuarial exam in
financial mathematics, known as Exam FM or Exam 2. You can take Exam 2 before
ExamP/Exam 1, which covers probability and is reviewed by our course Math 397A,
offered nearly every Spring Semester.
The first part of the course deals with pricing fixed
income securities, such as bonds and annuities. The second part
of the course serves as an introduction to derivative securities
such as options and futures.
Although the amount of material for both parts is the about the same,
Exam FM devotes usually about 2/3 of its questions towards Part 1.
As such, I will devote about 2/3 of the semester towards Part 1.
Chapters 1-8 of the McDonald text are SOA's official source of
Part 2; however, the material is covered in the requireed ASM Study Manual.
Except for one or two integrals, the math is high-school level
although the word problems require a certain amount of thought, and
are certainly not high school level.
Syllabus (may be adjusted).
Week 1: Interest rates
Week 2: Annuities
Week 3: Annuities
Week 4: Yield rates, IRR
(Actuarial Career Fair on Weds Sept 25 4:30-7:30pm, LGRT 1634)
Week 5: Amortizarion
Week 6: Bonds, review/catch up, midterm (Midterm Oct 10)
Week 7: Bonds (Withdraw deadline Oct 17, no class October 15)
Week 8: Duration
Week 9: Duration, Intro to derivs
(FM Exam registration deadline Oct 28)
Week 10: Forwards
Week 11: Options
Week 12: Options,
Week 13: Hedging, Swaps (No class Thursday 11/28)
Week 14: Swaps, review (Exam FM December 9-20. Note Final exams begin Dec 9, so make sure you register early!)
Note: There is a similar course, Math 441, offered almost
every semester. This is usually taught by either Professor Sommers, Zhang,
or myself. We are currently restructuring the courses so that there
is minimal overlap of material. Math 441, should be more mathematically
challenging. It is also the basis of most of the material of Exam MFE/Exam 3.
However, unlike Math 497FM and 397A, it is not structured as an exam-prep
course. Later chapters in the McDonald text are the official source of material
for Exam MFE. However, Math 441 (currently) has no required text note
as Professors Sommers, Zhang, or I distribute Math 441 lecture notes for free.
midterm will be in class on October 10.
Here is the midterm make-up policy
borrowed from one of my old calc classes. Old
497FM exams can be found on the miscellaneous links page.
The closed-book final exam will be TBA.
The grade for the course will be determined by weekly quizzes,
a number of in-class group assignements,
and two exams.
The quizzes will be worth 30%.
The quiz question(s) will be based almost exactly on one(two) of the ``1st 30 evenly distributed" (will explain in class) questions on the relevant sections of the ASM manual.
There will be several in-class group assignments, where
students, in groups, will work on a problem together, and pending time, may
present the solution at the board.
These will be unannounced; however, if class attendance seems low,
I will probably choose that time for a group problem.
There will also probably be one evening Actuarial Career Fair for
which participation is mandatory. The group problems and Fair
attendance make up 10% of the grade.
The midterm will be worth 30%.
The final exam will be worth 30%.
The lowest quiz score and lowest in-class assignment score will be dropped.
But there will be NO excuses for missed quizzes or assignments.
That's what the drops are for!
Moreover, if you miss half or more of the quizzes
(drops won't help you here), you'll be penalized by 2/3 of a letter grade;
e.g., B+ to B- or C- to D. (I do not assign A+, D+, or D- as a grade.)
There will be no make-up or extra-credit work.
Bonus grading feature:
If you take and pass the Actuarial (computer-based) exam offered
between December 9 and December 20, 2012, you will receive an
automatic 100% on all remaining quizzes and the final.
You will NOT need to take the final. The passing
score is around 70% and the passing rate is about 40%.
The exam is 35 multiple choice questions in 3 hours.
The registration deadline is October 28. See
You will need to register early to ensure your FM exam occurs before your
I believe the closest test site is West Springfield.
You will need to let me know and present printed proof of
registration (in October)
before the exam, as well as printed proof of passing (in December),
immediately after the exam.
Another bonus grading feature:
If you write down slight variations of the ``first 30" problems each week,
(numbers need to be tweaked slighlty), and turn them in at the corresponding quiz date, you will be eligible for a ``overall letter grade bump."
Since this is extra credit, there is no specific formula for this. Instead,
I look at the overall numerical score (exams, quizzes, etc).
If you are
close enough to the letter grade divide, I then check to see if you have turned in
write-ups of the 30 problems ``more or less" each week. If so, I bump your letter grade by 0.33.
So for example, a B- becomes a B, B+ becomes an A-, etc.
Note that this is not conventional HW grading because the problems have fully-spelled out solutions.
This is to motivate you to at least read the problems and soilutions well enough that you can rewrite them with slightly different numerical values.