Markov-modulated diffusion risk models

Nicole Bäuerle and Mirko Kötter

Scandinavian Actuarial Journal, 2007, vol. 2007, issue 1, 34-52

Abstract: In this paper we consider Markov-modulated diffusion risk reserve processes. Using diffusion approximation we show the relation to classical Markov-modulated risk reserve processes. In particular we derive a representation for the adjustment coefficient and prove some comparison results. Among others we show that increasing the volatility of the diffusion increases the probability of ruin.

Date: 2007
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DOI: 10.1080/03461230601069528

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