On some multivariate Sarmanov mixed Erlang reinsurance risks: Aggregation and capital allocation

Abstract

Following some recent works on risk aggregation and capital allocation for mixed Erlang risks joined by Sarmanov’s multivariate distribution, in this paper we present some closed-form formulas for the same topic by considering, however, a different kernel function for Sarmanov’s distribution, not previously studied in this context. The risk aggregation and capital allocation formulas are derived and numerically illustrated in the general framework of stop-loss reinsurance, and then in the particular case with no stop-loss reinsurance. A discussion of the dependency structure of the considered distribution, based on Pearson’s correlation coefficient, is also presented for different kernel functions and illustrated in the bivariate case.