IFoA SP6 case studies
IFoA SP6 · Put your knowledge to work in context.
SP6 Financial Derivatives is an IFoA Specialist Principle subject, one of the advanced exams candidates take after the Core Principles stage of the actuarial qualification. It is aimed at actuaries who work with, price, hedge, or risk-manage derivative instruments, and at candidates moving into investment, treasury, capital markets, or quantitative risk roles where derivative pricing and hedging are central. The subject matter is technical and quantitative: candidates should expect to reason about pricing and valuation models, the behaviour of underlying markets, hedging and replication arguments, and the practical limits of those models when markets behave badly. Preparation is normally built around the IFoA's own curriculum and Virtual Learning Environment, which the Institute describes as offering "access to thousands of high-quality learning resources, short courses, and microlearning materials", plus past-paper-style practice under timed conditions. The IFoA SP6 case studies are 5 cases and about 2,510 words.
1Wrong-Way Risk in a Cross-Currency Swap with a Shipbuilder
A bank has a seven-year USD/KRW cross-currency swap with a Korean shipbuilder. Notional is USD 250m.
523 words, about 3 min2Volatility Surface Arbitrage in a Worst-of Autocallable
An equity derivatives desk is pricing a three-year worst-of autocallable note linked to three European banks. The note pays 8% per annum unless any underlying falls below 70% of its initial level.
495 words, about 2 min3Bermudan Swaption Model Risk for an Insurer
An insurer has sold a ten-year Bermudan swaption to a bank. The option is exercisable annually after year two and, if exercised, enters a GBP 500m swap paying fixed 3.5% and receiving SONIA.
481 words, about 2 min4CCP Margin Procyclicality and Liquidity Planning
A clearing member clears EUR 12bn notional of interest rate swaps for 40 clients, with maturities from 5 to 30 years. The CCP uses a historical VaR initial margin model with a five-year lookback and 99.5% confidence, plus a stress add-on.
502 words, about 3 min5Gap Risk on a Knock-In FX Put
A UK exporter buys a one-year USD/GBP knock-in put from a bank to hedge USD 50m of receivables. The put has a strike of 0.78 GBP/USD and a knock-in barrier at 0.74.
509 words, about 3 min