Approximations Of Ruin Probabilities Research Articles

Approximations of ruin probabilities under financial constraints

Approximations of ruin probabilities under financial constraints

Asymptotics and Approximations of Ruin Probabilities for Multivariate Risk Processes in a Markovian Environment

This paper develops asymptotics and approximations for ruin probabilities in a multivariate risk setting. We consider a model in which the individual reserve processes are driven by a common Markovian environmental process. We subsequently consider a regime in which the claim arrival intensity and transition rates of the environmental process are jointly sped up, and one in which there is (with overwhelming probability) maximally one transition of the environmental process in the time interval considered. The approximations are extensively tested in a series of numerical experiments.

Approximation of ruin probabilities via Erlangized scale mixtures

In this paper, we extend an existing scheme for numerically calculating the probability of ruin of a classical Cramér–Lundbergreserve process having absolutely continuous but otherwise general claim size distributions. We employ a dense class of distributions that we denominate Erlangized scale mixtures (ESM) that correspond to nonnegative and absolutely continuous distributions which can be written as a Mellin–Stieltjes convolution Π⋆G of a nonnegative distribution Π with an Erlang distribution G. A distinctive feature of such a class is that it contains heavy-tailed distributions.We suggest a simple methodology for constructing a sequence of distributions having the form Π⋆G with the purpose of approximating the integrated tail distribution of the claim sizes. Then we adapt a recent result which delivers an explicit expression for the probability of ruin in the case that the claim size distribution is modeled as an Erlangized scale mixture. We provide simplified expressions for the approximation of the probability of ruin and construct explicit bounds for the error of approximation. We complement our results with a classical example where the claim sizes are heavy-tailed.

Sharp approximations of ruin probabilities in the discrete time models

According to Solvency II directive, each insurance company could determine solvency capital requirements using its own, tailor made, internal model. This highlights the urgency of having fast numerical tools based on practically-oriented mathematical models. From the Solvency II perspective discrete time framework seems to be the most relevant one. In this paper, we propose a number of fast and accurate approximations of ruin probabilities involving some integral operator and examine them along strictly theoretical as well as numerical lines. For a few claim distributions the approximations are shown to be exact. In general, we prove that they converge with an exponential rate to the exact ruin probabilities without any restrictive assumptions on the claim distribution. A fast algorithm to approximate ruin probabilities by a numerical fixed point of the involved integral operator is given. As an application, ruin probabilities for, e.g. normally and Weibull – distributed claims are computed. Comparisons with discrete time counterparts of some continuous time approximation methods are also carried out. Numerical studies show that our approximations are precise both for small and large values of the initial surplus u. In contrast, the empirical De Vylder-type ones strongly depend on the claim distributions and are less precise for small and medium values of u.

Dynamic Proportional Reinsurance and Approximations for Ruin Probabilities in the Two‐Dimensional Compound Poisson Risk Model

We consider the dynamic proportional reinsurance in a two‐dimensional compound Poisson risk model. The optimization in the sense of minimizing the ruin probability which is defined by the sum of subportfolio is being ruined. Via the Hamilton‐Jacobi‐Bellman approach we find a candidate for the optimal value function and prove the verification theorem. In addition, we obtain the Lundberg bounds and the Cramér‐Lundberg approximation for the ruin probability and show that as the capital tends to infinity, the optimal strategies converge to the asymptotically optimal constant strategies. The asymptotic value can be found by maximizing the adjustment coefficient.

On moments based Padé approximations of ruin probabilities

In this paper, we investigate the quality of the moments based Padé approximation of ultimate ruin probabilities by exponential mixtures. We present several numerical examples illustrating the quick convergence of the method in the case of Gamma processes. While this is not surprising in the completely monotone case (which holds when the shape parameter is less than 1), it is more so in the opposite case, for which we improve even further the performance by a fix-up which may be of special importance due to its potential use in the four moments Gamma approximation. We also review the connection of the exponential mixtures approximation to Padé approximation, orthogonal polynomials, and Gaussian quadrature. These connections may turn out useful for providing rates of convergence.

Ruin probabilities and optimal capital allocation for heterogeneous life annuity portfolios

A large part of the actuarial literature is devoted to the derivation of ruin probabilities in various non-life insurance risk models. On the contrary, very few papers deal with ruin probabilities for life insurance portfolios. The difficulties arise from the dependence and non-stationarity of the annual payments made by the insurance company. This paper shows that the ruin probability in case of life annuity portfolios can be computed from algorithms derived by De Pril (1989) and Dhaene & Vandebroek (1995). Approximations for ruin probabilities are discussed. The present article complements the works of Frostig et al. (2003) who considered whole life, endowment, and temporary assurances, and of Denuit & Frostig (2008) who considered homogeneous life annuities portfolios. Here, heterogeneous portfolios (with respect to age and/or face amounts) are studied. Particular attention is paid to the capital allocation problem. The total amount of reserve is shared among the risk classes in order to minimize the ruin probability. It is then fair to charge a higher margin to the risk classes requiring more capital.

Approximation for Ruin Probability in the Sparre Andersen Model with Interest

We consider the Sparre Andersen model modified by the inclusion of interest on the surplus. Approximation for the ultimate ruin probability is derived by rounding. And upper bound and lower bound are also derived by rounding-down and rounding-up respectively. According to the upper bound and lower bound, we can easily obtain the error estimation of the approximation. Applications of the results to the compound Poisson model are given.

What is the best approximation of ruin probability in infinite time?

We compare 12 different approximations of ruin probability in infinite time studying typical light- and heavy-tailed claim size distributions, namely exponential, mixture of exponentials, gamma, lognormal, Weibull, loggamma, Pareto and Burr. We show tha

Corrected Diffusion Approximations for Ruin Probabilities in a Markov Random Walk

Let (X, S) = {(Xn, Sn); n ≧0} be a Markov random walk with finite state space. For a ≦ 0 < b define the stopping times τ= inf {n:Sn > b} and T= inf{n:Sn∉(a, b)}. The diffusion approximations of a one-barrier probability P {τ < ∝ | Xo= i}, and a two-barrier probability P{ST ≧b | Xo = i} with correction terms are derived. Furthermore, to approximate the above ruin probabilities, the limiting distributions of overshoot for a driftless Markov random walk are involved.

Corrected Diffusion Approximations for Ruin Probabilities in a Markov Random Walk

Let (X, S) = {(Xn , Sn ); n ≧0} be a Markov random walk with finite state space. For a ≦ 0 < b define the stopping times τ= inf {n:Sn > b} and T= inf{n:Sn ∉(a, b)}. The diffusion approximations of a one-barrier probability P {τ < ∝ | X o = i}, and a two-barrier probability P{ST ≧b | X o = i} with correction terms are derived. Furthermore, to approximate the above ruin probabilities, the limiting distributions of overshoot for a driftless Markov random walk are involved.

Expansions for Markov-modulated systems and approximations of ruin probability

LetNbe a stationary Markov-modulated marked point process on ℝ with intensityβ∗and consider a real-valued functionalψ(N). In this paper we study expansions of the formEψ(N) =a0+β∗a1+ ·· ·+ (β∗)nan+o((β∗)n) forβ∗→ 0. Formulas for the coefficientsaiare derived in terms of factorial moment measures ofN. We computea1anda2for the probability of ruinφuwith initial capitalufor the risk process in the Markov-modulated environment;a0= 0. Moreover, we give a sufficient condition forϕuto be an analytic function ofβ∗. We allow the premium rate functionp(x) to depend on the actual risk reserve.

Expansions for Markov-modulated systems and approximations of ruin probability

Let N be a stationary Markov-modulated marked point process on ℝ with intensity β ∗ and consider a real-valued functional ψ(N). In this paper we study expansions of the form Eψ(N) = a 0 + β ∗ a 1 + ·· ·+ (β∗ ) nan + o((β ∗) n ) for β ∗→ 0. Formulas for the coefficients ai are derived in terms of factorial moment measures of N. We compute a 1 and a 2 for the probability of ruin φ u with initial capital u for the risk process in the Markov-modulated environment; a 0 = 0. Moreover, we give a sufficient condition for ϕu to be an analytic function of β ∗. We allow the premium rate function p(x) to depend on the actual risk reserve.

Approximations of Ruin Probability by Di-Atomic or Di-Exponential Claims

AbstractThe sensitivity of the ruin probability depending on the claim size distribution has been the topic of several discussion papers in recent ASTIN Bulletins. This discussion was initiated by a question raised by Schmitter at the ASTIN Colloquium 1990 and attempts to make further contributions to this problem. We find the necessary and sufficient conditions for fitting three given moments by diatomic and diexponential distributions. We consider three examples drawn from fire (large spread), individual life (medium spread) and group life (small spread) insurance data, fit them with diatomics and diexponentials whenever the necessary and sufficient conditions are met, and compute the ruin probabilities using well known formulas for discrete and for combination of exponentials claim amounts. We then compare our approximations with the exact values that appeared in the literature. Finally we propose using diatomic and diexponential claim distributions as tools to study the Schmitter problem.

A remark on ‘A class of approximations of ruin probabilities’

Abstract In this short note we shall show that a certain ‘tail’-condition used by Grandell (1977, p. 42) is unnecessary. We shall freely use notions and notations from our previous paper. We shall only consider the Poisson case.

A comparison of some approximations of ruin probabilities

Abstract A model for the risk business of an insurance company, where the claims are assumed to be located in time according to a Poisson process and where the claims are Γ-distributed, is considered. Various approximations of the ruin probability are compared with its exact value. Finally some limit results, when the variance of the Γ-distribution tends to infinity, are discussed.