These are projects posted by the students of Dr. Gove Allen at Brigham Young University. These students have taken one semester-long course on VBA and generally have had no prior programming experience

Monday, April 13, 2015

ACTUARIAL CALCULATION

Executive Summary


I decided to be an actuary when I first came to Brigham Young University. An actuary is someone who utilizes advanced knowledge on Mathematics, Business and Economics to manage risk. An actuary prices, validates, valuates and designs products for insurance companies and consulting firms. In order to be certified, an actuary takes a number of actuarial exams throughout his school life and career. I have been preparing for Exam MFE, Models of Financial Economics recently. This exam involves the knowledge of theoretical basis of financial models. A big part of it is to price call and put options. I found it sometimes hard to calculate the answers fast and accurately because of the complex mathematical formulas that we need to memorize. Therefore, I decided to make a handy tool for actuaries and exam candidates to come up with the answers more efficiently. The binomial option pricing model, Black-Scholes formula model and the Monte Carlo valuation method are included in this tool because of the extensive usage of these methods.

The Binomial Trees model assumes that the price of a stock can move up or down only by a specified amount. Therefore, we can determine a no-arbitrage price for the corresponding options.

The Black-Scholes model is one of the most well-known options pricing models in the world. It was developed in 1973 and is widely used in the financial world to calculate the theoretical price of European put and call options.

Monte Carlo valuation is an empirical method. It is used to value a derivative by generating random lognormal numbers and the derivative values from the lognormal numbers using the model. Then, we can set the price of the derivative to the average of the generated values.


I truly believe that this actuarial calculation tool will enhance the speed of the calculations and minimize the mistakes the human minds make. 

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