📘 Economic Modelling

Economic Modelling (CM2) is the paper you should opt for to build a strong foundation in the application of stochastic models and financial techniques essential to actuarial work. This paper develops a grounding in the mathematical and statistical principles required for valuing financial derivatives and modelling insurance liabilities, mainly focusing on understanding and applying models for option pricing, asset valuation, and reserving techniques. Alongside this, the related and required understanding of stochastic processes, risk-neutral valuation, and simulation methods to assess financial and insurance risks is also developed. It is available through both the institutes, the Institute of Actuaries of India (IAI) and the UK-based Institute and Faculty of Actuaries (IFoA).

🔍 Why is CM2 Important?

CM2 builds the modelling foundation you need for real-world actuarial work in finance, insurance, and risk.
CM2 helps you to know how to price options, futures and other derivatives using stochastic models like Black-Scholes and binomial tree.
It helps you in learning techniques to estimates reserves for claims using methods such as run-off triangles and chain ladder techniques.
You can also give CP2 (Modelling Practice) along with CM2 – a good combo for knowledge as CP2 is also an Excel based paper and it includes modelling.

🧠 Main Topics in CM2 (Subjective)

CM2 covers both theoretical and practical topics like:

Valuing forward & future contracts.
Calculating the price of Options using different models like Black- Scholes Model, 5-step etc.
Risk neutral valuation.
Loss reserving techniques.
Learning different types of models for portfolio obvservation and risk valuation.
Exposure curves and Reinsurance.
Excel skills for actuarial modelling.

💼 Where Can You Use CM2 Knowledge?

Pricing and Managing Derivatives – Valuing options, futures and swaps in life insurance or pension products.
Reserving for insurance liabilities – estimating outstanding claim reserves in general insurance using run-off triangles.
Asset-Liability management – designing hedging strategies to manage risks in life insurance portfolios.
Regulatory and capital modelling.

📝 How to Prepare for CM2?

Focus on building the understanding on the topics stochastic models, derivative pricing, arbitrage-free pricing, loss reserving methods & simulation techniques.
Start practicing the Paper B Material early and master different Excel shortcuts and functions like offset, frequency and many more.
After completing the syllabus two times with revision, start solving the PYPs and give Mock Tests.

📑 Structure of CM2

CM2 is divided into two parts:

Component	Exam Format	Duration
CM2A – Theory	IAI: Computer-Based MCQ IFoA: Written theory (MS Word) ( 5 minutes extra for downloading)	3 hours 15 minutes
CM2B – Practical	Excel-based application test using real actuarial problems (15 minutes extra for uploading)	1 hour 45 minutes

📚Topics Covered and their Weightings

Topic	Weightage
Rational economic theory	10%
Measures of investment risk	10%
Asset valuations	30%
Liability valuations	20%
Option theory	30%

📊 Passing Criteria

Institute	Passing Marks
IAI (India)	50% (Fixed); 30% in both Paper A and Paper B
IFoA (UK)	56%–65% (Varies by term)

Praveen Sancheti	AIR 1
Aditya Chaudhary	AIR 1
Mokshit Kothari	AIR 1
Yash Agarwal	90
Girdhari	89
Khyati Soni	88
Mrigank Agarwal	86
Nikhilesh Poddar	86
Vandita Sarda	85
Siddharth Sonthalia	85

CM2-Economic Modelling

📘 Economic Modelling

🔍 Why is CM2 Important?

🧠 Main Topics in CM2 (Subjective)

💼 Where Can You Use CM2 Knowledge?

📝 How to Prepare for CM2?

📑 Structure of CM2

📚Topics Covered and their Weightings

📊 Passing Criteria

WHAT YOU WILL GET

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