Discrete-time risk models with surplus-dependent premium corrections

Dhiti Osatakul, Shuanming Li and Xueyuan Wu

Applied Mathematics and Computation, 2023, vol. 437, issue C

Abstract: This paper studies discrete-time risk models with insurance premiums adjusted according to claims experience. The premium correction mechanism follows the well-known principle in the non-life insurance industry, the so-called bonus-malus system. The bonus-malus framework that we study here extends the current literature by allowing the premium correction rules to vary according to the current surplus level of the insurance company. The main goal of this paper is to evaluate the risk of ruin for the insurer who implements the proposed bonus-malus system. Two premiums correction principles are examined: by aggregate claims or by claim frequency. Further, the Parisian type of ruin is also considered, where the premium adjustment rules are different in positive- and negative-surplus environment.

Keywords: Discrete-time risk model; Bonus-malus system; Finite-time ruin; Recursive computation; Surplus-dependent premiums; Parisian ruin (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:437:y:2023:i:c:s0096300322005690

DOI: 10.1016/j.amc.2022.127495

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