Core Technical IFoA
CM2

Financial Engineering & Loss Reserving

Stochastic models, derivatives, and claims reserving — the quantitative core of non-life actuarial work.

Enrol Now — ₹20,000 Free Counselling
S.MONK Pass Rate
58%
Study Hours
250–300 hours
Exam Sittings
2 per year (April, September)
Salary After Clearing
₹6–12 LPA with CM1+CM2 cleared

About CM2

CM2 extends the deterministic mathematics of CM1 into stochastic financial models. You will price options using Black-Scholes, model interest rates with Vasicek and CIR, and project claims reserves using development triangle methods. Increasingly important as markets move toward derivatives and structured products.

Who is this for?

Students who have cleared or are nearly through CM1, with comfort in probability and calculus. Essential for roles in non-life insurance, reinsurance, and investment strategy.

Complete Syllabus

  • Brownian motion — properties, quadratic variation, Itô's formula
  • Stochastic differential equations — Geometric Brownian Motion, Ornstein-Uhlenbeck
  • Risk-neutral pricing — replication, no-arbitrage, risk-neutral measure
  • Black-Scholes model — European options, put-call parity, Delta and Gamma hedging
  • Interest rate models — Vasicek, CIR, Hull-White term structure models
  • Credit risk — Merton model, credit ratings, credit default swaps
  • Ruin theory — classical Cramér-Lundberg model, probability of ruin, Lundberg bound
  • Loss reserving — development triangles, chain-ladder, Bornhuetter-Ferguson method
  • Simulation — Monte Carlo methods, variance reduction, quasi-Monte Carlo

Career Outcomes

Typical Roles After Clearing
Pricing Actuary, Risk Analyst, Reinsurance Analyst, Investment Actuary
Expected Salary
₹6–12 LPA with CM1+CM2 cleared
"
Ravi Sir's Exam Tip

The stochastic calculus section trips up most students. Don't memorise Itô's lemma — understand what it is doing geometrically with Brownian paths.

"CM2 was the hardest paper I sat. The S.MONK sessions on stochastic calculus were the only reason I passed. Ravi Sir spent three classes on Brownian motion alone — it made everything click."

Arjun Sharma
Risk Actuary, Gen Re Mumbai
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