INSURANCE AND ECONOMETRICS (Master Degree, Mathematical Engineering)
Prof. Michele Azzone (Econometrics) and Prof. Alessandro Calvia (Insurance)
AIM of the Course:
The aim of this course is to cover two main topics: insurance markets and econometrics.
Lectures and coding sessions will allow students to acquire the following competences:
– Knowledge and understanding
basic and advanced concepts of actuarial mathematics;
basic and advanced concepts of econometrics.
– Ability in applying knowledge and understanding
know how to compute the fair premium of an insurance contract;
know how to analyze in a proper way a financial time series.
– Making judgements
be able to judge the main financial risks in insurance contracts;
find proper modeling assumptions to analyze financial time series.
– Communication skills
to be able to express mathematical and financial concepts in a clear and rigorous way.
SUBJECTS of the Course:
On the insurance markets part, we will address some modelization issues that make the market different from the banking market and we will deal with the Solvency II regulation. We will address the issue of pricing life products and the definition of reserves. We then consider the main features of damage insurances, and the differents w.r.t. life insurances.
The econometrics part is intended to supply the students with basic econometric tools for financial time series modeling. Stationary processes and the Wold theorem will be described to pursue ARMA models selection, estimation and forecast. We will introduce unit root processes, vector models and cointegration. We address heteroskedastic (ARCH-GARCH) models for market volatility to be applied to portfolio hedging problems. We will consider factor models for large portfolios and the principal component approach.
EXAMINATION PROCEDURE:
a) a project on the insurance part;
b) a project on the econometrics part;
c) an oral exam on both the insurance and the econometrics part.
For both projects, the maximum mark is 30/30. In order to be admitted to the oral exam the average mark of the two projects must be at least 12/30. The objective of projects is to let students work in groups, applying the approaches and principles taught in class. Projects will be assigned during the semester. Project outputs are expected to be released at fixed deadlines that will be defined by the time the project will be assigned. The evaluation of projects will be based on the produced outputs (documentation, code, …).
The oral exam is mandatory, and it could result in a maximum increase of the final mark of 3/30 points.
The exam has the goal of checking whether the student has acquired the following skills:
– knowledge of basic and advanced concepts of actuarial mathematics;
– knowledge of the EU regulamentation for Insurance markets;
– knowledge of basic and advanced concepts of econometrics;
– ability to compute the fair premium of an insurance contract, as well as its profit for the insurance company;
– ability to analyze in a proper way financial time series;
– ability to judge the main sources of financial risk in insurance contracts;
– ability to express mathematical and financial concepts in a clear and rigorous way.