This second paper from the Compliance/Peer Review Working Party of the Professional Affairs Board sets out the reasons for introducing peer review within the profession, and outlines the areas of professional difficulty identified. The main recommendation is that peer review by an actuary's colleagues in his firm should be carried out on all relevant work before presentation to the client (whether an internal or external client). The situations in which this practice would be mandatory are also set out and, initially, these will relate to mandatory guidance in practising certificate areas.

The paper explores the framework for the development of actuarial education in the future. The main aims are to broaden the profession while maintaining standards and to achieve global qualifications by working with other actuarial bodies. The suggested way forward would mean several changes from existing practice.

The constant elasticity of variance (CEV) diffusion process can be used to model heteroscedasticity in returns of common stocks. In this diffusion process, the volatility is a function of the stock price and involves two parameters. Similar to the Black-Scholes analysis, the equilibrium price of a call option can be obtained for the CEV model. The purpose of this paper is to propose a new estimation procedure for the CEV model. A merit of our method is that no constraints are imposed on the elasticity parameter of the model. In addition, frequent adjustments of the parameter estimates are not required. Simulation studies indicate that the proposed method is suitable for practical use. As an illustration, real examples on the Hong Kong stock option market are carried out. Various aspects of the method are also discussed.