A Markov Chain Model for Contagion

Angelos Dassios and Hongbiao Zhao
Additional contact information
Angelos Dassios: Department of Statistics, London School of Economics, Houghton Street, London WC2A 2AE, UK
Hongbiao Zhao: Department of Finance, School of Economics & Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China

Risks, 2014, vol. 2, issue 4, 1-22

Abstract: We introduce a bivariate Markov chain counting process with contagion for modelling the clustering arrival of loss claims with delayed settlement for an insurance company. It is a general continuous-time model framework that also has the potential to be applicable to modelling the clustering arrival of events, such as jumps, bankruptcies, crises and catastrophes in finance, insurance and economics with both internal contagion risk and external common risk. Key distributional properties, such as the moments and probability generating functions, for this process are derived. Some special cases with explicit results and numerical examples and the motivation for further actuarial applications are also discussed. The model can be considered a generalisation of the dynamic contagion process introduced by Dassios and Zhao (2011).

Keywords: risk model; contagion risk; bivariate point process; Markov chain model; discretised dynamic contagion process; dynamic contagion process (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2227-9091/2/4/434/pdf (application/pdf)
https://www.mdpi.com/2227-9091/2/4/434/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:2:y:2014:i:4:p:434-455:d:42003

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager (indexing@mdpi.com).