Mathematical Fun with the Compound Binomial Process

Hans U. Gerber

ASTIN Bulletin, 1988, vol. 18, issue 2, 161-168

Abstract: The compound binomial model is a discrete time analogue (or approximation) of the compound Poisson model of classical risk theory. In this paper, several results are derived for the probability of ruin as well as for the joint distribution of the surpluses immediately before and at ruin. The starting point of the probabilistic arguments are two series of random variables with a surprisingly simple expectation (Theorem 1) and a more classical result of the theory of random walks (Theorem 2) that is best proved by a martingale argument.

Date: 1988
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