Optimal prevention strategies in the classical risk model

Romain Gauchon (), Stéphane Loisel, Jean-Louis Rullière () and Julien Trufin ()
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Romain Gauchon: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Jean-Louis Rullière: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Julien Trufin: Département de mathématiques Université Libre de Bruxelles - ULB - Université libre de Bruxelles

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Abstract: In this paper, we propose and study a first risk model in which the insurer may invest into a prevention plan which decreases claim intensity. We determine the optimal prevention investment for different risk indicators. In particular, we show that the prevention amount minimizing the ruin probability maximizes the adjustment coefficient in the classical ruin model with prevention, as well as the expected dividends until ruin in the model with dividends. We also show that the optimal prevention strategy is different if one aims at maximizing the average surplus at a fixed time horizon. A sensitivity analysis is carried out. We also prove that our results can be extended to the case where prevention starts to work only after a minimum prevention level threshold.

Keywords: Prevention; Optimal prevention strategy; Ruin theory; Insurance (search for similar items in EconPapers)
Date: 2020-02-03
New Economics Papers: this item is included in nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-02314899v2
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Citations: View citations in EconPapers (2)

Published in Insurance: Mathematics and Economics, 2020, 91, pp.202-208. ⟨10.1016/j.insmatheco.2020.02.003⟩

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Journal Article: Optimal prevention strategies in the classical risk model (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02314899

DOI: 10.1016/j.insmatheco.2020.02.003

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