Ruin Theory

[jthomps7]

I was going through some older exams (c. 2001) earlier today, and I noticed a couple of questions on ruin theory. I've had this in classes before, but haven't they taken it off of Exam M? Didn't it leave the same time as simulation? Just wondering, thanks!

[its_me]

Yes, Ruin theory & simulation & statistics is not on SOA M

[UFActuary]

Yeah I just noticed one of my study booklets is misleading.

It tells you Ruin Theory is only for the CAS 3 version of the exam and then provides practice problems from previous SOA exams. I hope someone knows if this topic is still tested on the SOA Exam M.

[UFActuary]

Oh thanks, I didn't see your reply. Was this topic discontinued from the SOA as of recently?

[UFActuary]

oh nevermind I got my answer

[mlschop]

what is ruin theory exactly? it's not the same as "gambler's ruin" is it (probably a dumb question...)

[Gandalf]

Gambler's ruin is a very specific case.

Ruin theory evaluates the probability that an enterprise will have gone bankrupt (reached surplus < 0, where surplus = assets - liabilities) within a given time, or ever.

That's the general idea. You could use a different definition of ruin. E.g, the probability that surplus is ever lower than initial surplus.

Gambler's ruin also says the gambler quits if he ever reaches his target winnings. Usually ruin theory problems (at least in insurance) don't have an upper stopping criteria.