Gerber-Shiu theory for discrete risk processes in a regime switching environment

Abstract

In this paper we develop the Gerber-Shiu theory for the classic and dual discrete risk processes in a Markovian (regime switching) environment. In particular, by expressing the Gerber-Shiu function in terms of potential measures of an upward (downward) skip-free discrete-time and discrete-space Markov Additive Process (MAP), we derive closed form expressions for the Gerber-Shiu function in terms of the so-called (discrete) Wv and Zv scale matrices, which were introduced in [27]. We show that the discrete scale matrices allow for a unified approach for identifying the Gerber-Shiu function as well as the value function of the associated constant dividend barrier problems.