The aim of this course is to give a good grasp of both the theoretic basis and practical application of quantitative methods for estimating risk and making portfolio selections, relevant to financial institutions and insurance companies. In the beginning of the course, portfolios with different sets of assets are studied, and risk is calculated using analytic approximation, volatility models and extremal value theory. In connection with this, some portfolio choice methods are studied, including classical Markowitz theory. After this, risks and investment strategies for a life insurance company are studied, using so-called ALM-analysis. This is a more involved portfolio choice problem, since it is not sufficient to study the assets, as the exposure towards clients also has to be taken into account. Because of the complexity of the problem, simulation methods are used for this, and an economically credible stochastic scenario generator is constructed, based on market data, together with the implementation of a model for the life insurance company itself. The question of how to calculate the required risk capital for a life insurance company is also treated, based on balance sheets consistent with the market. This is one of the cornerstones of the regulatory framework Solvence 2 for insurance companies and is used today by many companies in the form of Economic Capital. The course also includes an introduction to credit risk modelling, together with reserve allocation and risk modelling in non-life insurance.
In a degree, this course may not be included together with another course with a similar content. If unsure, students should ask the Director of Studies in Mathematics and Mathematical Statistics. The course can also be included in the subject area of computational science and engineering.
