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Ruin Problems: Simulation or Calculation?

Published online by Cambridge University Press:  10 June 2011

D.C.M. Dickson  and
H.R. Waters
D.C.M. Dickson
Affiliation:
Centre for Actuarial Studies, The University of Melbourne, Victoria, 3010, Australia. Tel: +61 3 8344 6899; E-mail: [email protected]
H.R. Waters
Affiliation:
Heriot-Watt University, Riccarton, Edinburgh, EH14 4AS, U.K. Tel: +44 (0)131 451 3211; Fax: +44 (0)131 451 3249; E-mail: [email protected]
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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.

Keywords

Ruin TheoryTranslated Gamma DistributionInvestment IncomeSimulationRecursive Calculation
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 2 , Issue 3 , 01 August 1996 , pp. 727 - 740
Copyright
Copyright © Institute and Faculty of Actuaries 1996

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References

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