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On the time value of ruin in the discrete time risk model

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  • Li, Shuanming
  • Garrido, José

Abstract

Using an approach similar to that of Gerber and Shiu (1998), a recursive formula is given for the expected discounted penalty due at ruin, in the discrete time risk model. With it the joint distribution of three random variables is obtained; time to ruin, the surplus just before ruin and the deficit at ruin. The time to ruin is analyzed through its probability generating function (p.g.f.). The joint distribution for the compound binomial model is derived in Cheng et al. (2000) using martingale techniques and a duality argument. Here we find a recursive formula for the p.g.f. of ruin time T; the discounted moments of the deficit at ruin and the surplus just before ruin. A detailed discussion is given in the case u = 0 and when the claim size in a unit time is geometrically distributed.

Suggested Citation

  • Li, Shuanming & Garrido, José, 2002. "On the time value of ruin in the discrete time risk model," DEE - Working Papers. Business Economics. WB wb021812, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:wb021812
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    References listed on IDEAS

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    1. Cheng, Shixue & Gerber, Hans U. & Shiu, Elias S. W., 2000. "Discounted probabilities and ruin theory in the compound binomial model," Insurance: Mathematics and Economics, Elsevier, vol. 26(2-3), pages 239-250, May.
    2. Lin, X. Sheldon & Willmot, Gordon E., 1999. "Analysis of a defective renewal equation arising in ruin theory," Insurance: Mathematics and Economics, Elsevier, vol. 25(1), pages 63-84, September.
    3. Hans Gerber & Elias Shiu, 1998. "On the Time Value of Ruin," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(1), pages 48-72.
    4. Dickson, David C.M., 1994. "Some Comments on the Compound Binomial Model," ASTIN Bulletin, Cambridge University Press, vol. 24(1), pages 33-45, May.
    5. Lin, X. Sheldon & Willmot, Gordon E., 2000. "The moments of the time of ruin, the surplus before ruin, and the deficit at ruin," Insurance: Mathematics and Economics, Elsevier, vol. 27(1), pages 19-44, August.
    6. Delbaen, Freddy, 1990. "A remark on the moments of ruin time in classical risk theory," Insurance: Mathematics and Economics, Elsevier, vol. 9(2-3), pages 121-126, September.
    7. Picard, Philippe & Lefevre, Claude, 1998. "The moments of ruin time in the classical risk model with discrete claim size distribution," Insurance: Mathematics and Economics, Elsevier, vol. 23(2), pages 157-172, November.
    8. Willmot, Gordon E., 1993. "Ruin probabilities in the compound binomial model," Insurance: Mathematics and Economics, Elsevier, vol. 12(2), pages 133-142, April.
    9. Gerber, Hans U., 1988. "Mathematical Fun with the Compound Binomial Process," ASTIN Bulletin, Cambridge University Press, vol. 18(2), pages 161-168, November.
    10. Willmot, Gordon E. & Cai, Jun, 2001. "Aging and other distributional properties of discrete compound geometric distributions," Insurance: Mathematics and Economics, Elsevier, vol. 28(3), pages 361-379, June.
    11. Egidio dos Reis, Alfredo D., 2000. "On the moments of ruin and recovery times," Insurance: Mathematics and Economics, Elsevier, vol. 27(3), pages 331-343, December.
    12. Gerber, Hans U. & Shiu, Elias S. W., 1997. "The joint distribution of the time of ruin, the surplus immediately before ruin, and the deficit at ruin," Insurance: Mathematics and Economics, Elsevier, vol. 21(2), pages 129-137, November.
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    Cited by:

    1. Claude Lefèvre & Stéphane Loisel, 2008. "On Finite-Time Ruin Probabilities for Classical Risk Models," Post-Print hal-00168958, HAL.
    2. Gerber, Hans U. & Shiu, Elias S.W. & Yang, Hailiang, 2010. "An elementary approach to discrete models of dividend strategies," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 109-116, February.
    3. Pavlova, Kristina P. & Willmot, Gordon E., 2004. "The discrete stationary renewal risk model and the Gerber-Shiu discounted penalty function," Insurance: Mathematics and Economics, Elsevier, vol. 35(2), pages 267-277, October.

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