1. Financial Risk Management of Insurance Enterprises Review for First Exam

2. Finance 432 First Exam Wednesday, February 27, 2008 10-11:20 am 215 David Kinley Hall

3. First Exam Details Exam is worth 30 points. Approximately 15 questions. Exam is open book, open note. You will need a calculator. You cannot share material with other students. You cannot use a computer, cell phone or any other device capable of communication. Test covers material from lectures 1-12 and assignments 1-4. Exam tests your ability to perform calculations and to explain financial risk management concepts.

4. How to Prepare for the First Exam Review lecture notes Review assignments and class projects to make sure you know how to do calculations Review readings on topics you have not mastered Practice explaining key terms used in class to those not familiar with topic –Friends (if not in this class) –Parents

5. Tips for Taking the First Exam First answer all the questions you can without relying extensively on your notes. Then work on the remaining questions if time permits.

6. Pre-Exam Office Hours Steve D’Arcy 311 Wohlers Hall Monday, February 252-4 pm Liang Zhang, Alfred Au 104 Surveying Building Tuesday, February 264-5:30 pm

7. What You Need to Know for the First Exam Why financial risk management is important The role of actuaries and financial economists –Similarities –Differences Financial market basics –CAPM and APM –Option pricing model –Value-at-Risk, Tail VaR How insurers handle financial risk management –Santomero and Babbel –Cummins, Phillips and Smith

8. What You Need to Know for the First Exam - continued Bond pricing and interest rates –Forward interest rates –Term structure theories Derivatives –Forwards –Futures –Swaps –Options Interest rate options –Credit derivatives

9. What You Need to Know for the First Exam - continued Asset-Liability Management Duration Convexity How cash flows can change with interest rates –Assets –Liabilities