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Ruin Problems: Simulation or Calculation?

Author

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  • Dickson, D.C.M.
  • Waters, H.R.

Abstract

In this paper we use a case study of a non-life insurance portfolio to demonstrate how recent research in ruin theory can be applied to solvency problems. By approximating the aggregate claims distribution for the portfolio by a translated gamma distribution, we estimate ruin probabilities through a recursive procedure when the insurer earns investment income on its surplus. We also show the results of applying simulation techniques to this problem, and discuss some advantages and disadvantages of simulation as a means of assessing ruin probabilities. Finally we discuss the calculation of the probability of ruin at the end of a specified time period.

Suggested Citation

  • Dickson, D.C.M. & Waters, H.R., 1996. "Ruin Problems: Simulation or Calculation?," British Actuarial Journal, Cambridge University Press, vol. 2(3), pages 727-740, August.
    • Handle: RePEc:cup:bracjl:v:2:y:1996:i:03:p:727-740_00
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    Cited by:

    1. Paulsen, Jostein, 1998. "Ruin theory with compounding assets -- a survey," Insurance: Mathematics and Economics, Elsevier, vol. 22(1), pages 3-16, May.
    2. Elisabeth Paté‐Cornell & Léa A. Deleris, 2009. "Failure Risks in the Insurance Industry: A Quantitative Systems Analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 12(2), pages 199-212, September.

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