Introduction to option pricing including put-call parity, binomial models, and Black-Scholes pricing for European options.
These are the key learning objectives for Option Pricing Fundamentals on SOA Exam FAM. Paraphrased from the public SOA syllabus — we recommend also checking the current syllabus on soa.org before your exam sitting.
Apply put-call parity to relate European call and put prices
Price options using one-period and multi-period binomial models
Use the Black-Scholes formula to price European calls and puts
Upload your ACTEX Exam FAM digital edition, scanned ASM pages, TIA handouts, or your own notes. exclam.ai extracts the Option Pricing Fundamentals sections and generates flashcards automatically.
Generate multiple-choice quizzes specifically on Option Pricing Fundamentals. Weak questions get re-surfaced until you get them right consistently.
Because Option Pricing Fundamentals is 5–10% of your exam, losing it during review costs you. FSRS brings it back at the optimal moment.
SOA Exam FAM has 7 topic areas. Option Pricing Fundamentals is weighted at approximately 5–10% of the exam — here is where it sits relative to the other topics.
| Topic area | Weight |
|---|---|
| Insurance Coverages and Retirement Products | 5–10% |
| Severity, Frequency, and Aggregate Models | 15–20% |
| Parametric Estimation | 10–15% |
| Mortality and Survival Models | 10–15% |
| Life Insurance Pricing and Reserving | 15–20% |
| Short-Term Insurance Pricing and Reserving | 15–20% |
| → Option Pricing Fundamentals | 5–10% |
Structure and features of common insurance and retirement products including life insurance, annuities, health, and short-term insurance.
Statistical models for individual loss severity, claim frequency, and aggregate loss distributions including compound distributions.
Maximum likelihood and method of moments estimation for parametric models, including goodness of fit testing.
Life table construction, force of mortality, select and ultimate mortality, and multiple-decrement models.
Pricing and reserving for life insurance and life annuity products using the equivalence principle and benefit reserves.
Pricing, loss reserving, and credibility for short-term insurance products including property, casualty, and health.
Upload your ACTEX Exam FAM digital edition, scanned ASM pages, TIA handouts, or your own notes. exclam.ai generates a fully guided study plan with adaptive flashcards and quizzes for this topic.