An Optional Semimartingales Approach to Risk Theory

Mahdieh Aminian Shahrokhabadi (), Alexander Melnikov and Andrey Pak
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Mahdieh Aminian Shahrokhabadi: Faculty of Science, Mathematics and Statistical Sciences Department, University of Alberta, Central Academic Building, Edmonton, AB T6G 2G1, Canada
Alexander Melnikov: Faculty of Science, Mathematics and Statistical Sciences Department, University of Alberta, Central Academic Building, Edmonton, AB T6G 2G1, Canada
Andrey Pak: SS&C Technologies, Toronto, ON M5V 3K2, Canada

Risks, 2025, vol. 13, issue 4, 1-27

Abstract: This paper aims to develop optional semimartingale methods in risk theory to allow for a larger class of risk models. Optional semimartingales are left-continuous with right-limit stochastic processes defined on a probability space where the usual conditions—completeness and right-continuity of the filtration—are not assumed. Three risk models are formulated, accounting for inflation, interest rates, and claim occurrences. The first model extends the martingale approach to calculate ruin probabilities, the second employs the Gerber–Shiu function to evaluate the expected discounted penalty from financial oscillations or jumps, and the third introduces a Gaussian risk model using counting processes to capture premium and claim cash flow jumps in insurance companies.

Keywords: optional semimartingale; ruin probability; left-continuous with right-limit stochastic processes (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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