Actuarial Science

# Definitive Guide For Actuarial Science Mathematics

## Introduction

Actuarial Science Mathematics or CM1 is a subject that provides basic knowledge in the principles of actuarial modelling, focusing on deterministic models, and their application to financial products. Students get to have in-depth knowledge about actuarial modelling, theories of interest rates and various mathematical techniques used in modelling. Actuarial mathematics courses include theory and application of the ideas to real data sets. Students who are weak in mathematics need to pay a bit more attention to this particular paper. Scroll further to get more information about the topics that come under the actuarial mathematics course.

## Actuarial Science Mathematics    ## Topics under Actuarial Science Mathematics(CM1)

The syllabus of this paper mainly deals with skills like having a detailed knowledge and understanding of the topics and demonstration of an ability to apply the principles underlying the topic within a given context.

1. Data and basics of modelling: This section describes why and how models are used, including, in general terms, the use of models for pricing, reserving and capital modelling. Along with explaining the benefits and limitations of modelling, students get to understand the difference between a stochastic and a deterministic model, and identify the advantages/disadvantages of each. This section also directs various ways to describe the characteristics of scenario-based proxy models.Students get an idea of how to decide whether a model is suitable for any particular application and learn the difference between the short-run and long-run properties of a model along with its relevance in deciding whether a model is suitable for any particular application. As the students proceed to gain more knowledge in this paper, these are the other topics that they cover:

• How to analyse the potential output from a model, and explain why this is relevant to the choice of model.
• Describe the process of sensitivity testing of assumptions, and explain why this forms an important part of the modelling process.
• Explain the factors that must be considered when communicating the results following the application of a model.
• Describe how to use a generalised cash flow model to describe financial transactions.
• State the inflows and outflows in each future time period, and discuss whether the amount or the timing (or both) is fixed or uncertain for a given cash flow process.
• Describe in the form of a cash flow model, the operation of financial instruments (like a zero-coupon bond, a fixed-interest security, an index-linked security, cash on deposit, an equity, an interest-only loan a repayment loan and an annuity certain) and an insurance contract (like endowment, term assurance, contingent annuity, car.

2. Theory of interest Rates:  This paper helps the students to understand the relationship between the rates of interest and discount over one effective period arithmetically and by general reasoning. They learn various ways to derive the relationships between the rate of interest payable once per measurement period (effective rate of interest) and the rate of interest payable times per measurement period (nominal rate of interest) and the force of interest.

3. Equation of value and its Application: Students learn methods to define an equation of value, where payment or receipt is certain and how an equation of value can be adjusted to allow for uncertain receipts or payments. They use the concept of equation of value to solve various practical problems.

4. Single decrement model:
Students understand the operation of conventional with-profits contracts, in which profits are distributed by the use of regular reversionary bonuses and by terminal bonuses.

5.Multiple decrement and Multiple life models: This section deals with cash flows dependent upon the death or survival of either or both of two lives. So students learn the various techniques to deal with functions dependent upon a fixed term as well as age.

6.Pricing and reserving: This topic deals with calculating gross premiums and reserves of assurance and annuity contracts.

## Actuarial Mathematics Course Exam Pattern

Students who are good with handling data, solving mathematical equations and putting these skills to practical use, normally find this exam easier when compared to others.

 Details CM1 A CM1 B Duration 3 hrs 20 mins 1 hr 50 mins Mode of Exam Theoretical Exam Computer-based Exam

## Steps to Appear in Actuarial Science Mathematics(CM1) Exam

• Students having membership of IFoA can appear for the actuarial science mathematics exam, from the same institute.
• Visit the IFoA Portal and submit the application form online.
• Book the actuarial science mathematics exam for the upcoming sitting once your application has been reviewed and cleared.
• Keep a track of the student membership criteria because IFoA keeps changing them.

## Topic Wise Weightage

 Sl.No. SUBJECTS WEIGHTAGE 1. Data and basics of modelling 10% 2. Theory of interest rates 20% 3. Equation of value and its applications 15% 4. Single decrement models 10% 5. Multiple decrement and multiple life models 10% 6. Pricing and reserving 35%

## CONCLUSION

The Actuarial mathematics course is known to be quite tough but once a student understands the basics, it becomes quite easy. The domain of actuarial science keeps gaining more and more demand, students who wish to build a career in well awarded jobs should pay more attention to starting early preparations, especially of the actuarial science mathematics paper!

#### What kind of Mathematics do actuary use?

Actuaries generally use probability, statistics & financial mathematics to define future financial uncertainty

#### Is actuarial science mathematics hard?

Actuarial science mathematics is hard & need good preparation to clear the exam.

#### What all topics comes under actuarial science mathematics?

Main topics come under actuarial science mathematics are :

• Differential equations
• liner algebra
• Complex analysis

#### Do I need to have strong mathematics skills to become an actuary ?

Yes, as you will crunch lots of numbers & that requires good mathematics skills.