Book : Risk Analysis in Finance and Insurance, 1st Edition
This book deals with the notion of ‘risk’ and is devoted to analysis of risks in nance and insurance. More precisely, we study risks associated with future repayments (contingent claims), where we understand risks as uncertainties that may result in nancial loss and affect the ability to make repayments. Our approach to this analysis is based on the development of a methodology for estimating the present value of the future payments given current nancial, insurance and other information. Using this approach, one can adequately de ne notions of price of a nancial contract, of premium for insurance policy and of reserve of an insurance company. Historically, nancial risks were subject to elementary mathematics of nance and they were treated separately from insurance risks, which were analyzed in actuarial science. The development of quantitative methods based on stochastic analysis is a key achievement of modern nancial mathematics. These methods can be naturally extended and applied in the area of actuarial mathematics, which leads to uni ed methods of risk analysis and management. The aim of this book is to give an accessible comprehensive introduction to the main ideas, methods and techniques that transform risk management into a quantitative science. Because of the interdisciplinary nature of our book, many important notions and facts from mathematics, nance and actuarial science are discussed in an appropriately simpli ed manner. Our goal is to present interconnections among these disciplines and to encourage our reader to further study of the subject. We indicate some initial directions in the Bibliographic remark. The book contains many worked examples and exercises. It represents the content of the lecture courses ‘Financial Mathematics’, ‘Risk Management’ and ‘Actuarial Mathematics’ given by the author at Moscow State University and State University – Higher School of Economics (Moscow, Russia) in 1998-2001, and at University of Alberta (Edmonton, Canada) in 2002-2003.
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