Introduction to Course3:40
Preview the capital management and modelling course by outlining what capital is, theoretical and regulator models, and key concepts like risk management and capital allocation.
What is Capital11:35
Define capital as funds to cover uncertainty around future cash flows, and show how capital and risk management reduce ruin with expected values, random variables, and buffering.
Overview of Ruin Theory4:40
Ruin theory models how initial capital, ongoing income, and random losses determine the probability of ruin over time, linking to value at risk as a capital modeling framework.
Theory of Capital Modelling13:28
Explore capital modelling by linking assets and liabilities to determine economic capital under risk tolerance. Apply concepts like variance, correlation, copula, stress testing, and scenario analysis to predict capital needs.
Risk Weighting Approach3:49
Apply the risk weighting approach to adjust asset contributions by risk factors, ensuring risk-weighted assets exceed liabilities with differentiated weights for stocks, bonds, cash, and property.
Uses of Capital Modelling9:46
Decode how capital models simulate internal operations and external environments to test strategy, risk interaction, capital sufficiency, pricing, product mix, and resilience under stress.
Capital Allocation - Euler's Method9:58
Explore capital allocation across business units using Euler's method to balance diversification and synergies while addressing new business strain.
Simple Capital Calculation Example17:04
Explore a simple capital calculation using a coin-flip game against thugs to illustrate how capital, risk appetite, and expected return interact, with binomial ruin probabilities guiding optimal sizing.

Very Brief History of Regulation3:56
Analyze late 16th to early 17th century regulation, comparing Holland's secure, collateral-backed approach with Spain's lax regulation and its impact on financial innovation and outcomes.
Basel Accords12:39
Explore the Basel accords from Basel I to Basel IV, detailing capital requirements, risk-weighted assets, and buffers. Learn how securitization, leverage, liquidity, and internal models shape bank resilience and disclosure.
Solvency II2:06
Explore Solvency II as the capital and risk framework for insurance companies, detailing the two-tier capital requirements, ORSA, liquidity management, and reporting to prevent license risk.

Components of an Actuarial Model9:17
Define objectives and validate assumptions, inputs, and parameters for actuarial models. Explain how outputs and conclusions guide decisions, and how stakeholders from executives to interns interact with the mortality model.
Limitations of Models3:26
Models carry limitations; garbage in, garbage out means bad data yields bad output. Treat models with care, using clean data, acknowledging costs, overconfidence risk, simplifications, incomplete data, bias, model risk.
Model Analysis (Stress, Sensitivity, Scenario Analysis)9:25
Explore sensitivity, scenario, and stress testing for actuarial models, evaluating how parameter changes affect outputs, plausible future events, and portfolio robustness under extreme conditions.

Introduction to Risk Assessment13:32
Explore risk as the consequence of uncertainty and understand its six dimensions (event, duration, frequency, severity, correlation, and capital) and how they guide risk assessment and management.
Properties of Risk Measures3:58
Explore the mathematical properties of risk measures, including coherence and convexity. Learn how monotonicity, subadditivity, positive homogeneity, and translation invariance shape risk and support diversification.
Introduction to Copulas12:47
Learn how copulas convert marginal distributions into a joint distribution using generator functions and their inverses, quantify correlation with alpha, and model diverse risks from market to credit.
GARCH Model for Volatility Estimation6:31
Explore the garch model for volatility estimation, detailing alpha and beta dynamics, the stability condition alpha plus beta less than 1, long-run variance, and volatility clustering.
Merton Model for Credit Risk14:34
Explore the Merton model, linking equity and debt through the Black-Scholes framework to estimate default probability and credit spreads, with equity as a call and debt as a put.
Merton Model Drawbacks2:31
Examine the Merton model's drawbacks: frictionless market assumptions, observable asset values, deterministic risk-free rate, and debt as a zero coupon, plus missed scenarios like rights issues or bailouts.

Requirements

Risk Management and Risk Modelling

Description

This course is the final chapter for the CERA Profession: Enterprise Risk Management.

It is designed specifically for students writing the SP9 exam.

We look at:

What is Capital?
Overview of Ruin Theory
Theoretical Capital Model
The Simple Risk Weighting Approach
Uses of Capital Modelling (Popular Exam Question)
Capital Allocation - Euler Method
Simple Capital Calculation Example

I've also included some bonus videos around:

Regulation
Principles of Modelling
Risk Models

Who this course is for:

Actuarial Students

Introduction to Economic Capital Management and Modelling

What you'll learn

Explore related topics

Course content

Capital Management8 lectures • 1hr 14min

Extra: Regulation3 lectures • 19min

Extra: Principles of Modelling3 lectures • 22min

Extra: Risk Models6 lectures • 54min

Requirements

Description

Who this course is for: