This course is taught routinely by Ph.D. students of my department every year. I will teach it next fall semester.

Risk Modeling RMI 3750-005 (CRN 13432)

I. Basic Information

Title: Risk Modeling: Probability Theory and Simulation Analysis in Risk Management 


Class Hours Tuesday and Thursday 09:30-10:45 am


Location: Aderhold Learning Center 224


Prerequisite: Math 1113; Co-requisite: MGS 3100. CSP 1, 6, and 7

II. Catalogue Description

This course introduces students to the principles of probability theory and risk simulation analysis. Specific topics covered include

probability theory; descriptive statistics and graphical representations of data; probability distribution functions including binomial,

Poisson, normal and other functions; sampling distributions and the central limit theorem; estimation and tests; and static and dynamic

simulation models. Spreadsheet simulation exercises are used extensively to illustrate the concepts. The applications are drawn from a

variety of areas where risk analysis has become important including finance, insurance, corporate risk management and personal financial

planning.

IV. Course Objectives

This course introduces students to the principles of probability theory and risk simulation analysis. Upon successful completion of this

course, students should be able to:

• Summarize data by population summary statistics and through graphical representations; 


• Calculate probabilities using basic counting rules and Venn Diagrams; 


• Calculate and use Bayes’ Theorem to update conditional probabilities; 


• Use sample statistics to estimate the population parameters and test the goodness-of-fit; 


• Calculate probability mass functions, cumulative distribution functions and summary statistics for a variety of discrete random

variables including Binomial, Geometric, Poisson, Hyper-geometric, Negative Binomial etc;


• Calculate probability density functions, cumulative distribution functions and summary statistics for a variety of continuous
 random variables including Uniform, Normal, Lognormal, Exponential, Gamma etc;


• Use Central Limit Theorem to demonstrate the principle of risk management through diversification; 


• Program simulation models to analyze various risk exposures; 


• Develop strategies that will effectively manage or mitigate a risk exposure. 


Required Software: You will need access to a computer since we will use Microsoft Excel extensively throughout the course. I strongly

recommend students to bring their laptops in class when we have Excel learning sessions. Students can also use the public computer labs to

complete the assignments.

Calculator: Students are recommended to use one of the Texas Instrument calculators (BA-35, BA II Plus, BA II Plus Professional Edition,

TI-30Xa, TI-30XIIS, TI- 30XIIB, TI-30XS MultiView, TI-30XB MultiView)

VI. Assignments and Evaluation Criteria

• Exams 


There will be two mid-term exams and one final exam during the semester. All exams will be closed-textbook and closed-notes,

no computer and no cellphone will be allowed. Students who must miss an exam must contact me ASAP, before the exam.

Make-up exams are only offered under extraordinary circumstances (e.g. sickness attested by a medical certificate by Dean of

Students office, jury duty, etc.).

• Homework


There will be four homework during the semester. In some of the assignments you will be asked to use Microsoft Excel. You

may work in teams of 2 or 3 students.

V. Required Textbook: 1) Hassett, Matthew J. and Donald G. Stewart, Probability for Risk Management (2nd Edition), 2) Actex

Publications, Winsted, Conn., 2006.