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On some aspects of Maximum Severity of Ruin

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  • Palash Ranjan Das
  • Tripti Chakrabarti

Abstract

The authors of this article engage ruin theory as a mathematical basis for quantifying the financial risks in insurance industry. Considering a classical risk model with dividend barrier, it is calibrated to obtain the maximum probability of ruin when the claim amount distribution is either exponential or Erlangian. It is to be noted that for numerical evaluation, the premium loading factor is taken to be 20 per cent in both the cases. In order to ensure fair comparison, exponential and Erlangian parameters have been chosen in such a way that their mean and the expected total claims are same for both the distributions over a given time interval. Ultimately, it is generalized that the classical risk model by considering a renewal risk model can be used to find an expression for the maximum severity of ruin in the insurance industry.

Suggested Citation

  • Palash Ranjan Das & Tripti Chakrabarti, 2016. "On some aspects of Maximum Severity of Ruin," Metamorphosis: A Journal of Management Research, , vol. 15(2), pages 109-114, December.
    • Handle: RePEc:sae:metjou:v:15:y:2016:i:2:p:109-114
    DOI: 10.1177/0972622516675980
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    References listed on IDEAS

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    1. Hans Gerber & Elias Shiu, 2005. "The Time Value of Ruin in a Sparre Andersen Model," North American Actuarial Journal, Taylor & Francis Journals, vol. 9(2), pages 49-69.
    2. K. K. Thampi & M. J. Jacob & N. Raju, 2007. "Barrier Probabilities And Maximum Severity Of Ruin For A Renewal Risk Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(05), pages 837-846.
    3. Gerber, Hans U. & Goovaerts, Marc J. & Kaas, Rob, 1987. "On the Probability and Severity of Ruin," ASTIN Bulletin, Cambridge University Press, vol. 17(2), pages 151-163, November.
    4. Dickson,David C. M., 2005. "Insurance Risk and Ruin," Cambridge Books, Cambridge University Press, number 9780521846400.
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