CM2A – Economic Modelling

Course Overview

CM2A equips students with advanced theoretical tools for understanding and modelling financial markets, insurance risks, and decision-making under uncertainty. The course combines financial economics, derivative pricing, utility theory, and ruin theory with a mathematical lens tailored for actuarial application.

Topics Covered

• Principles of rational economic decision-making, including utility functions and risk aversion

• Measures of investment risk and the role of insurance in managing risk exposure

• Asset pricing models: CAPM, multifactor models, and mean-variance theory

• Stochastic models for interest rates and credit risk

• Theoretical pricing of forward contracts and options using arbitrage, binomial models, and Black-Scholes framework

• Concepts in liability valuation, including ruin theory and estimation of insurance claims using analytical methods

Course Outcome

By completing CM2A, students develop a solid conceptual framework for understanding how economic models drive pricing, valuation, and reserving in both life and non-life insurance contexts. The course prepares candidates for the written exam component of CM2 and builds critical knowledge required in SP5, SP6, and SP9.