Limit Theorems for Local Cumulative Shock Models with Cluster Shock Structure

Jianming Bai, Yun Chen, Chun Yuan and Xiaoling Yin

Mathematical Problems in Engineering, 2015, vol. 2015, 1-10

Abstract:

This paper considers a more general shock model with insurance and financial risk background, in which the system is subject to two types of shocks called primary shocks and secondary shocks. Each primary shock causes a series of secondary shocks according to some cluster pattern. In reliability applications, a primary shock can represent an issue of insurance policies of an insurer company, and the secondary shocks then denote the relevant insurance claims generated by the policy. We focus on the local cumulative shock process where only a certain number of the most recent primary and secondary shocks are accumulated. This process is a very new topic in the available literature which is more flexible and realistic in modeling some more complex reliability situations such as bankrupt behavior of an insurance company. Based on the theory of infinite divisibility and stable distributions, we establish a central limit theorem for the local cumulative shock process and obtain the conditions for the process to converge to an infinitely divisible distribution or to an -stable law. Also, by choosing the proper scale parameters, the process converges to a normal distribution.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:828979

DOI: 10.1155/2015/828979

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