INDIRA GANDHI NATIONAL OPEN

UNIVERSITY, NEW DELHI

DETAILED SYLLABI AND CURRICULUM

OF
M.Sc. ACTUARIAL ECONOMICS
Post Graduate Degree (a Two Year Full time)
Programme to be offered at
MADRAS SCHOOL OF ECONOMICS
Under
SCHOOL OF SOCIAL SCIENCE (ECONOMICS)

Eligibility for Admission

Graduates in any subject with strong Mathematical/Statistical Background (at least

having plus 2 mathematics) are eligible to apply for the two-year degree course.
Admission will be based on common entrance test.

Other Regulations as per M.Sc. Regulations for Post-Graduate

Programmes of IGNOU

January 2010

1
 M.Sc. ACTUARIAL ECONOMICS

The post-graduate degree in actuarial economics (M.Sc.-AE) is a two-year intensive course,

providing necessary training needed for an expert in actuarial field who analyzes the financial
consequences of risk. Such experts can work, apart from education and research, in insurance
companies, consulting/investment firms, credit rating agencies, government, and employee benefit
department of large corporations, hospitals, and banks. The work profile includes (i) research and
training, (ii) designing insurance and pension plans, (iii) determining insurance pricing, (iv) asset-
liability management etc.
In recent years, there has been a significant change in the global financial industries,
which have led to an enormous expansion in the financial sectors of many countries, including
India. One of the most significant developments has been the privatization and large-scale
expansion of insurance industry, which has led to an increased demand for actuaries. The
Insurance Regulatory and Development Authority (IRDA) man dates that life insurance companies
must have at least one appointed actuary while the general insurers can meet their actuarial needs
with the help of consultants.
This course is designed keeping in view the increasing demand for actuarial economists.
Hence, it is designed essentially to deal with the education of economics of insurance, insurance
risk, and financial management. In the process, the course draws inputs from mathematical,
statistical, and economic analysis involving a wide range of decision-making process in insurance,
investment, and financial planning and management.
Being designed to equip the learners with the underlying processes of decision making
under uncertainty, this programme seeks to offer in the first year, comprising two semesters, an
intensive training in understanding economic and financial theories, which are useful to study the
uncertain future events and will sufficiently cover the latest syllabi prescribed for the Core
Technical stage by the Actuarial Society of India (ASI). The third and the fourth semesters
attempts to provide the opportunity to the students to opt for electives from the number of choices
including applied econometrics. In addition, this program provides a valuable opportunity to the
students to (i) equip their computation skills by learning econometric applications using soft wares
(such as EVIEWS and STATA) and (ii) undertake a dissertation in the final semester to encourage
active learning in a real life situation.

2
 M.Sc. (ACTUARIAL ECONOMICS)

SEMESTER 1

Course Code Course Name C

AE:01 Microeconomics-I 4

AE:02 Macroeconomics-I 4

AE:03 Statistical Methods 4

AE:04 Mathematical Methods 4

SEMESTER 2

Course Code Course Name C

AE:5 Microeconomics-II 4

AE:6 Macroeconomics-II

AE:07 Financial Mathematics

AE:08 Actuarial Mathematics

AE:09 Econometric Methods

3
 SEMESTER 3

Course Code Course Name C

AE:10 Applied Econometrics

AE:11 Risk Models

AE:12 Stochastic Models

AE:13 Financial Economics I

AE 14 Financial Economics II

AE:15 Economics of Insurance I

AE:16 Fixed Income Securities

AE:17 Advanced Techniques in Finance

Courses listed under AE12 to AE17 are optional courses. Students need to take any two out of the
five offered courses.

SEMESTER 4

Course Code Course Name C

AE:18 Finance and Financial Reporting 4

AE:19 Health Economics 4

AE:20 Survival Models 4

AE:21 Environment and Health 4

AE:22 Public Economics 4

AE:23 Economics of Insurance II 4

AE:P1 Project Work 4

Courses listed under AE19 to AE23 are optional courses. Students need to take any two out of the
five offered courses.

C–Credit, Total Credits: 68

4
 CURRICULUM 2010 FOR FULL-TIME MODE FOUR SEMESTERS
DETAILED SYLLABUS

SEMESTER 1

AE:01 MICROECONOMICS-I

1. Consumer Behaviour and Demand

Consumer preferences, opportunity sets, optimum choices, indirect utility demand functions,
income and substitution effects, Slutsky equation, normal versus inferior goods, types of demand
functions, elasticity, welfare evaluation, consumer surplus, equivalent variation and compensating
variation, revealed preference (weak and strong axioms)

2. Utility Functions and Expected Utility Theorem

Expected utility function, measures of risk aversion, state-preference approach, portfolio theory
and pricing of risk, present discounted value approach to investment decisions, adjustments for
risk

3. Production and Cost

Production functions, types of production functions (Cobb-Douglas, CES, etc.), marginal
products, rate of technical substitution, technical progress, cost functions, average and marginal
costs, short run versus long run costs, economies of scale and scope, profit maximization, cost
minimization, derivation of input demand

4. Competitive Markets

Assumptions of perfect market, competitive markets – demand and supply, demand and supply
curves of individual firms, short-run versus long-run, competitive market equilibrium, tax-
incidence analysis, price-controls and shortages

5. Imperfect Competition

Market failure, imperfect markets – monopolistic competition and oligopoly, sources of monopoly
power, monopoly market equilibrium, price discrimination – first, second and third degree, tax-
incidence

Books

• Varian, H. R., Microeconomic Analysis, third edition, W.W. Norton and Co.,
1992
• Nicholson, W., Microeconomic Theory: Basic Principles and Extensions,
eighth edition, South Western Thomson Learning, 2002
• Henderson, M. and R.E. Quandt, Microeconomic Theory: Mathematical
Approach, McGraw Hill, 1980
• Pindyck, R.S. and D.L. Rubinfeld, Microeconomics, fifth edition, Prentice
Hall, 2004

5
 AE:02 MACROECONOMICS-I

1. National Income Accounting

Accounting structure, key concepts in accounting for both closed and open economies – gross
national product, gross domestic product, net national product, national income, savings and
investment, balance of payments, circular flow of income, computational problems – expenditure
approach, income approach and value added approach for measurement, input-output tables

2. Keynesian Models

Simple Keynesian Model, assumptions, concepts of involuntary unemployment, liquidity

preference, paradox of thrift, investment function, IS-LM model – two sector model, goods and
money market equilibrium, multiplier, liquidity trap, complete Keynesian model – three sector
model, role of government in terms of monetary and fiscal policy

3. Keynesian Models versus Classical Models

Says Law, quantity theory of money, price flexibility and full employment, Clowers and
Patinkin’s money demand functions, equilibrium concept in classical model, synthesis between
classical models and Keynesian models, interpretation and policy analysis

4. Expectations and Macroeconomic Adjustments

Expectations formations – Adaptive and rational expectations hypothesis, partial adjustment
model, Lucas critique, Phillips curve, rules versus discretion, time consistency, inflation targeting,
interest rate rules, effects of spending and taxes in models with flexible and sticky prices,
perverse effects of fiscal expansion
5. Macroeconomics: Open Economy Aspects
Market for foreign exchange, devaluation and depreciation, real and nominal exchange rate,
factors affecting exchange rate, Mundell-Fleming model, fixed versus floating exchange rate,
price adjustment, role of fiscal and monetary policies under alternative exchange rate regimes,
purchasing power parity concept

Books
• Scarth, W., Macroeconomics: An Introduction to Advanced Methods, third
edition, Thomson, 2007
• Mankiw, N. G., Macroeconomics, fifth edition, Worth Publishers, 2002
• Hall, E. and Taylor, J. B. Macroeconomics. W. W. Norton and Company,
1986
• Barro, R.J. Macroeconomics, Fifth edition, MIT Press 1997

6
 AE:03 STATISTICAL METHODS

1. Probability Theory
Concept of probability, conditional probability and Bayes’ theorem, random variables – discrete
and continuous, density and distribution functions, joint, marginal and conditional distribution,
moment generating function, law of large numbers and Central Limit theorem

2. Theory of Probability Distribution

Discrete versus continuous distribution, uniform, binomial, negative binomial, Poisson, geometric
and hyper-geometric, normal, log-normal, exponential, gamma and beta distribution, characteristic
function and moment generating fucntion

3. Sampling Methods and Sampling distributions

Simple random sampling: with and without replacement, stratified random sampling, probability
and non-probability sampling, statistic and sample moments, sampling distributions: Student’s-t,
Chi-square and F-distribution, determinants of sample size

4. Theory of Estimation

Point and interval estimation, properties of good estimators: unbiasedness, consistency, efficiency,
different methods of estimation, maximum likelihood and method of moment estimation,
properties of maximum likelihood and method of moment estimators, confidence interval for
unknown parameters

5. Hypothesis Testing

Statistical hypothesis, simple versus composite hypothesis, critical region, types and size of error –
type-I and type-II error, power of a test, Neyman-Pearson lemma, trinity of classical tests (Wald
test, Lagrange multiplier, likelihood ratio), application of hypothesis testing with known and
unknown variances, Chi-square test for testing independence of two-classification criteria, test for
correlation

Books

• Mood, A. M., R. A. Graybill and R.C. Boes, Introduction to the Theory of

Statistics, McGraw-Hill, 1974
• Hogg, R. and A. Craig, Introduction to Mathematical Statistics, McGraw-Hill,
1965
• Miller, I. and M. Miller, Mathematical Statistics, sixth edition, Prentice Hall
International, 1999
• Goon Gupta and Das Gupta, Fundamentals of Statistics, fifth edition, The
World Press, 1986

7
 AE:04 MATHEMATICAL METHODS

1. Linear Algebra

Vectors, matrices, inverse, simultaneous linear equations, Cramer’s rule for solving system of
linear equations, input-output model, Hawkin - Simon condition, open and closed models
quadratic equation, characteristic (eigen) roots and vectors

2. Differential Calculus

Derivatives – partial and total, economic applications, marginal and elasticity concepts, functions
of several variables, implicit function theorem, higher order derivatives and Young’s theorem,
Taylor’s approximation, convex sets, convex and concave functions, properties of linear
homogenous functions, Euler's theorem

3. Classical Optimization and Applications

Introduction to quadratic forms, unconstrained optimization, constrained optimization with
equality constraints, Lagrangian method, Hessian and Jacobian matrices, applications – utility
maximization, cost minimization, profit – output maximization

4. Linear and Non-linear Optimization

Duality theory, constrained optimization with inequality and non-negativity constraints,

Kuhn-Tucker formulation, linear programming – formulation, primal and dual, solutions using
graphical and Simplex methods, applications from economics and finance

5. Dynamic Models

Definite and indefinite integrals, applications – measuring consumer and producer surplus,
continuous interest – discount calculations, difference and differential equations, phase diagrams,
Cobweb model, multiplier accelerator, Harrod-Domar and Solow model, optimal control theory
and Hamiltonians; present and current value Hamiltonians, applications from economics and
finance

Books:

• Simon, C. and L. Blume, Mathematics for Economists, Norton, London, 1994

• Chiang, A. C., Fundamental Methods of Mathematical Economics, McGraw-
Hill, 1984
• Sydsaeter, K. and P. J. Hammond, Mathematics for Economic Analysis,
Pearson Education Asia, 1995
• Intriligator, M.D., Mathematical Optimization and Economic
Theory, Prentice-Hall, 1971
• Roberts B. and D.L. Schultze, Modern Mathematics and Economic Analysis,
W.W. Norton and Company, 1973