Analysis of the discounted sum of ascending ladder heights

Hélène Cossette, David Landriault, Etienne Marceau and Khouzeima Moutanabbir

Insurance: Mathematics and Economics, 2012, vol. 51, issue 2, 393-401

Abstract: Within the Sparre Andersen risk model, the ruin probability corresponds to the survival function of the maximal aggregate loss. It is well known that the maximum aggregate loss follows a compound geometric distribution, in which the summands consist of the ascending ladder heights. In the present paper, we propose to investigate the distribution of the discounted sum of ascending ladder heights over a finite or an infinite-time intervals. In particular, the moments of the discounted sum of ascending ladder heights over a finite and an infinite-time intervals are derived in both the classical compound Poisson risk model and the Sparre Andersen risk model with exponential claims. The application of a particular Gerber–Shiu functional is central to the derivation of these results, as is the mixed Erlang distributional assumption. Finally, we define VaR and TVaR risk measures in terms of the discounted sum of ascending ladder heights. We use a moment-matching method to approximate the distribution of the discounted sum of ascending ladder heights allowing the computation of the VaR and TVaR risk measures. We conclude this paper with a numerical example illustrating different topics discussed in the paper.

Keywords: Risk theory; Ruin theory; Aggregate loss process; Maximal aggregate loss process; Ascending ladder heights; Discounted sum of ascending ladder heights (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:2:p:393-401

DOI: 10.1016/j.insmatheco.2012.06.004

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