As an actuary, understanding and managing catastrophic risk is crucial for ensuring the financial stability of insurance companies and protecting communities from devastating events. Catastrophic risks can arise from natural disasters like hurricanes, earthquakes, or floods, as well as man-made disasters such as industrial accidents or cyberattacks. Stochastic processes offer a powerful tool for modeling these risks, allowing actuaries to quantify the likelihood and impact of potential disasters. In this guide, we’ll walk through the steps to model catastrophic risk using stochastic processes, providing practical examples and actionable advice along the way.