MATH 523 - Risk Theory
Winter 2014, Section 001
Instruction Mode: Section 001 is (see other Sections below)
Subject: Mathematics (MATH)
Department: LSA Mathematics
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Requirements & Distribution:
Waitlist Capacity:
Advisory Prerequisites:
MATH 425.
This course counts toward the 60 credits of math/science required for a Bachelor of Science degree.
May not be repeated for credit.
Primary Instructor:


Risk management is of major concern to all financial institutions and is an active area of modern finance. This course is relevant for students with interests in finance, risk management, or insurance and provides background for the professional examinations in Risk Theory offered by the Society of Actuaries and the Casualty Actuary Society. Students should have a basic knowledge of common probability distributions (Poisson, exponential, gamma, binomial, etc.) and have at least junior standing. Two major problems will be considered: (1) modeling of payouts of a financial intermediary when the amount and timing vary stochastically over time; and (2) modeling of the ongoing solvency of a financial intermediary subject to stochastically varying capital flow. These topics will be treated historically beginning with classical approaches and proceeding to more dynamic models. Connections with ordinary and partial differential equations will be emphasized. Classical approaches to risk including the insurance principle and the risk-reward tradeoff. Review of probability. Bachelier and Lundberg models of investment and loss aggregation. Fallacy of time diversification and its generalizations. Geometric Brownian motion and the compound Poisson process. Modeling of individual losses which arise in a loss aggregation process. Distributions for modeling size loss, statistical techniques for fitting data, and credibility. Economic rationale for insurance, problems of adverse selection and moral hazard, and utility theory. The three most significant results of modern finance: the Markowitz portfolio selection model, the capital asset pricing model of Sharpe, Lintner and Moissin, and (time permitting) the Black-Scholes option pricing model.

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MATH 523 - Risk Theory
Schedule Listing
001 (LEC)
 In Person
TuTh 11:30AM - 1:00PM
Note: Permission given through wait list. Preference given to Actuarial and Financial math concentrators

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