👉 Regulatory math in finance and economics involves the application of mathematical models to ensure compliance with laws and regulations governing financial markets, institutions, and transactions. It includes the use of statistical methods, optimization techniques, and probabilistic models to assess risks, set capital requirements, and monitor adherence to regulatory standards. For instance, Value at Risk (VaR) models estimate potential losses in portfolios under normal market conditions over a specific time horizon, helping institutions meet capital adequacy requirements. Similarly, stress testing uses mathematical simulations to evaluate how financial entities might perform under extreme market scenarios, ensuring they can withstand economic shocks while maintaining regulatory compliance. These mathematical tools are crucial for transparency, stability, and fairness in financial systems.
