Investment Guarantees

[LifeAct]

Is it possible to learn this material through TIA alone? I am having lots of trouble following the text.

As far as using this stuff in real life, I only see 4 things that are necessary to know.

1. Each type of guarantee (GMAB, GMDB, etc.)
2. Different types of stock market distributions (RSLN, etc.)
3. Stochastic modeling of the guarantees
4. The different types of risk measures (CtE, VaR)

[ACEManual]

I would say that you've just about got it. I'd throw in GAOs/EIAs as a part of the the Investment Guarantees book that isn't covered in your 4 bullet points. Of course EIAs are covered elsewhere, but there are some EIA bells and whistles that can only be found in Investment Guarantees.

With that said, your 4 bullet points are from about 10,000 feet. The exam committee is going to love coming to this text for some complex problems, and understanding the concepts at 10,000 feet might not be enough to get a good score. That's why you want as many practice problems as possible so that you can be sure that you aren't thrown off by a tricky question on exam day.

And, co-incidentally, if you want lots of practice problems, ACE is the way to go! We continue to lead in terms of depth and breadth of practice problems and we continue to (and will, in the future, continue to) add problems to our live and online seminar materials. If you have questions, contact us at acestudyguide@yahoo.com.

Thanks!
Jacob

[Enough Exams Already]

Is it possible to learn this material through TIA alone? I am having lots of trouble following the text.

As far as using this stuff in real life, I only see 4 things that are necessary to know.

1. Each type of guarantee (GMAB, GMDB, etc.)
2. Different types of stock market distributions (RSLN, etc.)
3. Stochastic modeling of the guarantees
4. The different types of risk measures (CtE, VaR)

It's a technical book on a technical subject; I've caught myself reading the same paragraph a couple of times in order to follow what's going on.

I think Mary Hardy posts on this board sometimes. Maybe you can shoot her a PM if you have a specific question or need clarification.

[Inigo Montoya]

I think question #13 from the 2007 exam came from the IG text. The TIA summaries don't seem to go into enough detail regarding the calculation portions.

The Financial Economics module also uses this text and helped me understand the material in more detail.

[rekrap]

Is it possible to learn this material through TIA alone? I am having lots of trouble following the text.

As far as using this stuff in real life, I only see 4 things that are necessary to know.

1. Each type of guarantee (GMAB, GMDB, etc.)
2. Different types of stock market distributions (RSLN, etc.)
3. Stochastic modeling of the guarantees
4. The different types of risk measures (CtE, VaR)

1, 2 and 4 cover Ch 1-2 and 9 rather well.

The problem is, as others have said above, that #3 encompasses Ch 6, 8, 12-13, which have some technical details that are easy fodder for exam questions, even though the examples are tedious and few, (no offense to Mary and her husband Boyle, who she loves to cite in her writing).

One suggestion, as you read/work through the example calculations, consider how an exam writer who has been assigned that particular chapter of the text could write a question incorporating that example. Also, review past exam questions (e.g., 2007 DP #5(c), or #13 or #14 even, or APMV 2007 #15 or #16) to see what angles the questions take.

Another key example of this issue is when you get to the LIME text, and after all that, they ask question #11 (2007 DP) using the one sparse commutation function :qunq:example:qunq: as the only question on that text.

[rekrap]

The Financial Economics module also uses this text and helped me understand the material in more detail.

So, LifeAct and other module-takers should have nothing to worry about, right?

[Inigo Montoya]

Yes, nothing to worry about.

[LifeAct]

So, LifeAct and other module-takers should have nothing to worry about, right?

The modules helped me with the actuarial method (i.e. stochastic reserving without hedging). It is the hedging strategies that confuse me. Everything is derived from scratch as if it were a thesis. I certainly appreciate the work done by Mary Hardy on this subject, but I have no interest in proofs right now.

[rekrap]

... but I have no interest in proofs right now.

Agreed, as they provide no value for passing an exam that requires applying the calculations more than understanding their derivation (e.g., APM 2006 #6b).

Unfortunately, neither Hardy's text nor the study manuals (except maybe Goldfarb's old 8V/CAS one) appear able to make the technical material more digestible, IMO.

[LifeAct]

Agreed, as they provide no value for passing an exam that requires applying the calculations more than understanding their derivation (e.g., APM 2006 #6b).

Unfortunately, neither Hardy's text nor the study manuals (except maybe Goldfarb's old 8V/CAS one) appear able to make the technical material more digestible, IMO.

I'll devote more time to the text on my second time around.

[rekrap]

It is the hedging strategies that confuse me.

BTW, here was a student's sample question (http://www.actuarialoutpost.com/actuarial_discussion_forum/showpost.php?p=2400889&postcount=30).

A few other links discussing the Hardy text:
Compound options in EIAs (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=121348)

When in doubt check the errata (e.g., Hardy example 6.15) (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=117932)

Dynamic hedging (Ch. 8) (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=121499) with a link to this discussion of why no IG flashcards from ACE (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=119045).

Old 8E Hardy related questions (http://www.actuarialoutpost.com/actuarial_discussion_forum/showpost.php?p=2406501&postcount=43) in addition to the complete compiled list of questions from inexactuary (http://www.actuarialoutpost.com/actuarial_discussion_forum/showpost.php?p=2318460&postcount=1) from 8I, 8V, APM, and Course 5
(e.g., 8V 2004 #5 is a great summary question for Ch 2 (http://www.actuarialoutpost.com/actuarial_discussion_forum/showpost.php?p=2365432&postcount=5)) Also, some discussion on APMV 2007 #15 (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=120911) and #16 (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=120984) related to Hardy material

A thread titled Investment Guarantees is as good a place as any to provide these links :shrug:

[MWLifer]

Yeah, so I read this book over the weekend. I barely understood a word of it...and so I'm kind of discouraged. I'll try looking at the links posted above to see if that helps, but man, I felt like I was reading a new language.

[Mary Hardy]

Have you done the FE Module? Did you take MFE? Those should help introduce a lot of the ideas. The early parts use the same sort of statistics ideas as exam C, and the later parts use the finance from MFE.

Proofs are in the book because they are an important part of the story. If I just listed formulae, then what will you do when a new guarantee is designed? I wasn't thinking of this as a text book at the time, I designed it as a manual for practitioners in the field.

It's interesting that the book is really unpopular in this forum, but gets quite a good press in the APM forum.

Anyway, sorry you don't like it, but if I'd made it simpler, it wouldn't have been very useful to anyone. As Einstein nearly said: a textbook should be as simple as possible -- but no simpler.

[Mary Hardy]

Oh yeah, I should add, I am not surprised that reading the book over the weekend didn't help. I think you need to try to work through, following the examples, ploughing through some of the numbers yourself. Hands on learning.

I know, of course, that time constraints make that tricky though.

[mjb]

I agree with Mary that the FE module helps introduce some of these ideas. I don't think the book is unpopular in this part of the forum (I found it very interesting), just that it is more difficult conceptually than the rest of the DP syllabus and takes a bit more time to digest, especially if you are not totally comfortable with option theory (the APM writers are likely very comfortable with this material already). This is not a criticism of the book, just the reality of the material being covered.

[Inigo Montoya]

I agree with Mary that the FE module helps introduce some of these ideas. I don't think the book is unpopular in this part of the forum (I found it very interesting), just that it is more difficult conceptually than the rest of the DP syllabus and takes a bit more time to digest, especially if you are not totally comfortable with option theory (the APM writers are likely very comfortable with this material already). This is not a criticism of the book, just the reality of the material being covered.

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[MWLifer]

Oh yeah, I should add, I am not surprised that reading the book over the weekend didn't help. I think you need to try to work through, following the examples, ploughing through some of the numbers yourself. Hands on learning.

I know, of course, that time constraints make that tricky though.

Oh yeah, I agree I need to spend more time with it. I probably was knee-jerking a little bit, mainly because it's far more technical than other materials on the syllabus. (And I was having trouble thinking what kind of questions could come from this.)

No, I haven't taken the FE module yet, sounds like it would have helped.

[oedipus rex]

I've tried summarizing the equations from this text and have come up with an overwhelming number of formulae. Are there general guidelines that allow you to derive some of these from first principles, so you minimize memorization?

[slystarnes]

I don't have any great tips but I would look for relationships between formulas to cut down your list. One example would be using put-call parity to move between the black-scholes formulas.