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Analysis of the discounted sum of ascending ladder heights

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  • Cossette, Hélène
  • Landriault, David
  • Marceau, Etienne
  • Moutanabbir, Khouzeima

Abstract

Within the Sparre Andersen risk model, the ruin probability corresponds to the survival function of the maximal aggregate loss. It is well known that the maximum aggregate loss follows a compound geometric distribution, in which the summands consist of the ascending ladder heights. In the present paper, we propose to investigate the distribution of the discounted sum of ascending ladder heights over a finite or an infinite-time intervals. In particular, the moments of the discounted sum of ascending ladder heights over a finite and an infinite-time intervals are derived in both the classical compound Poisson risk model and the Sparre Andersen risk model with exponential claims. The application of a particular Gerber–Shiu functional is central to the derivation of these results, as is the mixed Erlang distributional assumption. Finally, we define VaR and TVaR risk measures in terms of the discounted sum of ascending ladder heights. We use a moment-matching method to approximate the distribution of the discounted sum of ascending ladder heights allowing the computation of the VaR and TVaR risk measures. We conclude this paper with a numerical example illustrating different topics discussed in the paper.

Suggested Citation

  • Cossette, Hélène & Landriault, David & Marceau, Etienne & Moutanabbir, Khouzeima, 2012. "Analysis of the discounted sum of ascending ladder heights," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 393-401.
    • Handle: RePEc:eee:insuma:v:51:y:2012:i:2:p:393-401
    DOI: 10.1016/j.insmatheco.2012.06.004
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    References listed on IDEAS

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    1. Cossette, Hélène & Côté, Marie-Pier & Marceau, Etienne & Moutanabbir, Khouzeima, 2013. "Multivariate distribution defined with Farlie–Gumbel–Morgenstern copula and mixed Erlang marginals: Aggregation and capital allocation," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 560-572.

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