Casualty Actuarial Society Internet Course Interest Rate Models Stephen P. D’Arcy, FCAS Department of Finance University of Illinois at Urbana-Champaign Kevin C. Ahlgrim, ASA Department of Finance Bradley University

Course Overview 1.Introduction to the Course 2.The Use of Interest Rate Models in Insurance 3.Review of Finance Terminology 4.Interest Rate Basics 5.Historical Interest Rate Movements 6.Classification of Interest Rate Models 7.Tree Models of Interest Rates 8.Introduction to Stochastic Processes 9.Popular Interest Rate Models 10.Implementation Issues Implementation Issues Course Summary

Lecture 1 Introduction to the Course Course consists of: –12 PowerPoint Lectures on CD-ROM –Class website ( Discussion forum Problem sets Final exam –Participation in discussion forum is essential to course

Textbooks and Readings Textbooks: Hull Options, Futures, and Other Derivatives Fabozzi Valuation of Fixed Income Securities and Derivatives Readings: Ahlgrim excerpts from “The Effects of Multifactor Term Structure Models on the Valuation of Insurance” U of I Thesis 2001 Ahlgrim, D’Arcy and Gorvett “Parameterizing Interest Rate Models” CAS Forum Summer 1999 D’Arcy and Gorvett “The Effective Duration and Convexity of Liabilities for Property-Liability Insurers Under Stochastic Interest Rates” 2001 D’Arcy, Gorvett, Hettinger and Walling “Using the Public Access DFA Model: A Case Study” CAS Forum Summer 1998

Advice for Participants For each lecture: 1.Skim through reading 2.Listen to lecture 3.Review reading in more depth 4.Try the problems 5.Participate in the discussion forum 6.Move on to the next lecture

Important Points You can proceed through the material at your own pace But you need to set a reasonable schedule Don’t get bogged down Don’t get discouraged If you have questions or problems, get in touch with us