Optimal Retention Level for Infinite Time Horizons under MADM

Başak Bulut Karageyik and Şule Şahin
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Başak Bulut Karageyik: Department of Actuarial Sciences, Hacettepe University, 06800 Ankara, Turkey
Şule Şahin: Department of Actuarial Sciences, Hacettepe University, 06800 Ankara, Turkey

Risks, 2016, vol. 5, issue 1, 1-24

Abstract: In this paper, we approximate the aggregate claims process by using the translated gamma process under the classical risk model assumptions, and we investigate the ultimate ruin probability. We consider optimal reinsurance under the minimum ultimate ruin probability, as well as the maximum benefit criteria: released capital, expected profit and exponential-fractional-logarithmic utility from the insurer’s point of view. Numerical examples are presented to explain how the optimal initial surplus and retention level are changed according to the individual claim amounts, loading factors and weights of the criteria. In the decision making process, we use The Analytical Hierarchy Process (AHP) and The Technique for Order of Preference by Similarity to ideal Solution (TOPSIS) methods as the Multi-Attribute Decision Making methods (MADM) and compare our results considering different combinations of loading factors for both exponential and Pareto individual claims.

Keywords: optimal reinsurance; ultimate ruin probability; translated gamma process; expected utility; released capital; expected profit; MADM (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2016
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