In this post, we will tackle the valuation of a call option using two methods: a closed-form formula and a stochastic model. Options are a type of financial instrument that give their owner the right, but not the obligation, to buy or sell an asset at a predetermined price within a certain period. Here, we'll focus on a call option, which is a type of option allowing the holder to purchase the asset at a specific price (known as the strike price) before the option expires. Call options are commonly used in financial markets to bet on the potential increase …
Blog posts
Call option valuation: Black-Scholes vs. Monte Carlo
Created: 2024-11-10 | Last update: 2024-11-10
Loan repayment structures
Created: 2024-10-23 | Last update: 2024-10-23
In this post, we will discuss the two main types of loan repayment structures and build sample loan schedules using the cashflower package.
List of content:
Repayment structures
There are two main types of loan repayment structures:
- equal payment loan (annuity loan),
- equal principal loan (fixed principal).
Equal payment loan (annuity loan)
The total monthly payment is fixed (the same amount every month). Initially, a larger portion of the payment goes towards interest and a smaller portion towards the principal. Over time, as the outstanding loan balance decreases, more of …
CashflowerHub - concept presentation
Created: 2024-09-26 | Last update: 2024-09-26
In this blog post, I'll share the concept behind CashflowerHub, an application designed to be a central place for actuarial models, runs, and documentation. Currently, CashflowerHub is in its early development stages, with the core features being outlined.
CashflowerHub combines three key elements needed for effective actuarial reporting:
- cashflow models,
- runs,
- documentation.
The idea is to bring these parts together in one place, saving time and making things easier to manage.
Models
The "Models" page lists all the cashflow models owned by a company. Users can add, edit, and delete models as needed.
When viewing a specific model, users …
Best actuarial books
Created: 2024-09-19 | Last update: 2024-09-19
In this post, we want to share a list of some of the best actuarial books that helped us understand actuarial science better. This is just our personal list, but we think these books are great for anyone studying or working in the field.
Is there a book you think should be on this list? Let us know in the comments or use our contact form.
"Actuarial Mathematics" by Bowers, Gerber, Hickman, Jones, Nesbitt
This book was recommended to me when I started learning about life insurance, and it's often called the "actuarial bible". Some chapters were very useful …
Annuity immediate vs annuity due
Created: 2024-08-13 | Last update: 2024-08-26
The main difference between an annuity immediate and an annuity due is when payments are made. For an annuity immediate, payments are received at the end of each period, while for an annuity due, payments are received at the beginning of each period.
It's also important to distinguish between annuities and life annuities. Regular annuities provide payments for a set period, whereas life annuities make payments only as long as the policyholder is alive.
Annuity immediate
In an annuity immediate, payments are made at the end of each period.
Present value
To find the present value of an annuity immediate, …
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