Financial Engineering & Portfolio Theory -CM2 Actuarial Exam

Name: Financial Engineering & Portfolio Theory -CM2 Actuarial Exam
Rating: 4.7 (152 reviews)

By MJ the Fellow Actuary

Highest Rated

Last updated 7/2022

English

What you'll learn

8 sections • 45 lectures • 4h 45m total length

Financial Markets8:29
Explore stock, bond, derivative, forex, money, property, and risk markets, driven by supply and demand and guided by fundamental and technical analysis, plus investor sentiment.
Efficient Market Hypothesis8:12
Explore the efficient market hypothesis and its strong, semi-strong, and weak forms, with debates by Fama and Shiller, and examples like Apple and Bitcoin.
Can you beat the market?7:52
Active vs Passive Investment Strategies15:28
Compare active and passive investment strategies, explain momentum and contrarian approaches, and discuss the cost of active management, market efficiency, and diversification versus tracking error.
Covid-19 Investment Strategies5:21
What caused the Great Recession?22:28

Behavioural Economics2:14
Heuristics1:41
Framing2:34
Herd Instinct3:34
Anchoring2:06
Myopic Loss Aversion1:28
Mental Accounting2:14
Bias2:58
Story Believing3:35
Explore how stories shape financial decisions and asset prices, using bitcoin’s rise and crash as a narrative example. Learn to read market fears and hopes to anticipate price movements.
How to Fight Irrationality4:06
Learn how beliefs form—from authority, reason, and empirical truth—and why embracing doubt improves your decisions. Apply evidence-based thinking in finance, marketing, and politics to spot scams and make stronger choices.

Measures of Risk0:52
Variance and Semi-Variance2:14
Shortfall Probability1:00
Explain shortfall probability by calculating the chance that returns fall below a threshold l; use the average return, a benchmark, zero, or negative values to indicate loss magnitude.
Value at Risk2:16
Explore value at risk as a 99% loss threshold over 12 months, note normal model limits with fat tails, and discuss expected shortfall as tail value at risk.
Expected Shortfall (Tail VaR)1:20
Risk Measures and Utility Functions0:54

Portfolio Theory - Introduction4:23
Mean Variance Portfolio Theory4:34
Mean-variance portfolio theory guides investors to maximize return for a given risk or minimize risk for a return, defining risk as variance, using a quadratic utility function, and noting limitations.
Assumptions for Mean Variance Portfolio Theory2:16
This lecture outlines the mean-variance portfolio theory assumptions. It shows investments are chosen solely on risk and return, with no taxes, costs, or limits, and with known information.
Opportunity Set & Efficient Frontier5:23
Diversification Benefit3:03
Optimal Portfolio4:51

Utility Theory & Insurance Application10:47
Explore how utility theory and insurance interact, analyzing absolute and relative risk aversion, a quadratic utility model, and premium pricing to equate expected and current utility.
Stochastic Differential Equation for Stock Prices6:55
Use a stochastic differential equation to model stock prices, derive a lognormal distribution, and assess the four-year variance and CEO surplus, plus put option hedge considerations such as premium.
Call Options & Greeks5:15
Credit Risk Calculation7:02
Run Off Triangles3:11
Apply the inflation adjusted chain ladder method to a run-off triangle by deriving incremental claims from a cumulative table, adjusting for inflation using year indices, and computing outstanding claims.
Delta Hedging and Options6:36
Ruin Theory9:13

Section 1 - Introduction

Financial Markets
1. We look at various markets such as the Stock Market, the Bond Market, the Derivative Market as well as Risk markets.
Efficient Market Hypothesis
1. We consider the Strong, Semi and Weak form of the Efficient Market Hypothesis as well as the evidence for and against each one.
Can you Beat the Market?
1. We compare the success of Warren Buffet vs the success of John C Bogle
Active vs Passive Strategies
1. We compare two investment philosophies and consider the problems with each
Covid-19 Investment Strategies
1. I share my own investment strategies before and after Covid-19
What Caused the Great Recession
1. We look at what caused the global recession in 2008

Section 2 - Utility Theory

Irrational Behaviour
1. We play the St Petersburg Paradox and consider if our decisions can be irrational
Consumer Choice Theory
1. We look at indifference curves and budget lines to make decisions around bundles.
Utility Theory
1. We make observations about the utility of money and consider various attitudes towards risk.
Axioms of Utility
1. We look at Completeness, Transitivity, Continuity and Independence
Expected Utility Theory
1. We consider consumer choice theory with uncertainty
Stochastic Dominance
1. We look at Absolute, First Order and Second Order Dominance

Section 3 - Behavioural Economics

Section 4 - Risk Measures

Section 5 - Mean Variance Portfolio Theory

Section 6 - Capital Asset Pricing Model