Guide to ACST3007:
Asset and Liability Modelling 2

By Rajlaxmi Patil

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​What is ACST3007?

This unit provides a rigorous foundation in financial mathematics and stochastic modelling. It covers stochastic processes, martingales, and Ito calculus as the mathematical tools for modelling asset prices and interest rates. Applications include the Black–Scholes model, option Greeks, and hedging strategies, as well as pricing forwards, futures, swaps, and exotic options. The unit also introduces credit risk models, ruin theory, and interest rate term structures. Overall, the unit provided both theoretical and applied techniques for quantitative finance.

What is the most challenging part of the unit?​

The most challenging aspect of this unit was the technical language and notation, as many of the concepts and terms were new to me. Initially, it was difficult to follow the material and fully grasp the underlying ideas. To overcome this, I supplemented the lectures with online resources, particularly YouTube videos, which helped explain the terminology in simpler ways and allowed me to gradually build confidence and familiarity with the subject.

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How did you balance this subject with other commitments?

Balancing this unit with part-time work, another actuarial unit, and two finance units was manageable once I developed a consistent routine. I made sure to keep up by attending lectures and completing tutorials within the same week, which helped reinforce the material and prevented topics from piling up. I also dedicated regular study blocks to stay on track. This steady weekly effort meant I didn’t need to cram, and the workload felt reasonable once I established structure.

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General Study Tips/Techniques for Content

In this unit, I found it important to fully understand each week’s topic before moving on, especially the earlier weeks, as they laid the groundwork for later material. I made a deliberate effort to consolidate these early concepts so that more advanced topics became easier to follow. Summarising key results in my own words helped reinforce my learning and made revision more efficient. I aimed to complete tutorials within the same week, treating every step in the worked solutions as examinable rather than just focusing on final answers. When the content felt particularly difficult, I turned to supplementary resources such as YouTube videos, which often presented the ideas in a simpler way, before returning to the lecture notes to stay aligned with the course. Asking questions promptly also helped ensure that any areas of difficulty were resolved quickly and did not accumulate.

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Final Exam study

For final exam preparation, my main technique was creating a one-page summary of all the important results in the unit. This sheet pulled together the key models, assumptions, and pricing formulas into one place, making it easy to revise the essentials quickly. I emphasised core derivations such as risk-neutral pricing, delta-hedging, and the Black–Scholes model, as well as the Greeks and their intuition, since these concepts are central to many questions. Having everything condensed helped me see the links between different topics and focus only on what was most important. To strengthen this understanding, I systematically completed every tutorial question from week 1 and then reinforced the material by attempting past exam papers under timed conditions. This combination of a clear summary and extensive practice made my revision efficient and gave me confidence in both theory and application. 

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