Analysis of a drawdown-based regime-switching Lévy insurance model

David Landriault, Bin Li and Shu Li

Insurance: Mathematics and Economics, 2015, vol. 60, issue C, 98-107

Abstract: In this paper, we propose a new drawdown-based regime-switching (DBRS) Lévy insurance model in which the underlying drawdown process is used to model an insurer’s level of financial distress over time, and to trigger regime-switching transitions. By some analytical arguments, we derive explicit formulas for a generalized two-sided exit problem. We specifically state conditions under which the survival probability is not trivially zero (which corresponds to the positive security loading conditions of the proposed model). The regime-dependent occupation time until ruin is later studied. As a special case of the general DBRS model, a regime-switching premium model is given further consideration. Connections with other existing risk models (such as the loss-carry-forward tax model of Albrecher and Hipp, 2007) are established.

Keywords: Drawdown; Exit time; Two-sided exit problem; Lévy process; Occupation time; Premium change; Regime-switching (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:60:y:2015:i:c:p:98-107

DOI: 10.1016/j.insmatheco.2014.11.005

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