A provisioning problem with stochastic payments

Bernardo K. Pagnoncelli and Steven Vanduffel ()

European Journal of Operational Research, 2012, vol. 221, issue 2, 445-453

Abstract: We consider the problem of determining the minimal requirement one must establish in order to meet a series of future random payments. It is shown in a very general setting that this problem can be recast as a chance constrained model and how the technique of Sample Average Approximation can be employed to find solutions. We also use comonotonic theory to analyze analytical approximations in a restricted Gaussian setting. Our numerical illustrations demonstrate that the Sample Average Approximation is a viable and efficient way to solve the stated problem generally and outperforms the analytical approximations. In passing we present a result that is related to Stein’s famous lemma (Stein, 1981) and is of interest in itself.

Keywords: Risk management; Solvency; Comonotonicity; Sample Average Approximation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:221:y:2012:i:2:p:445-453

DOI: 10.1016/j.ejor.2012.01.065

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