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Risk-switching insolvency models

Lesław Gajek and Marcin Rudź
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Lesław Gajek: Lodz University of Technology, Institute of Mathematics (Poland)
Marcin Rudź: Lodz University of Technology, Institute of Mathematics (Poland)

Collegium of Economic Analysis Annals, 2018, issue 51, 129-146

Abstract: Risk-switching insolvency models

Keywords: This paper concerns the Sparre Andersen model with a risk-switching mechanism which enables effective modelling of an insurer’s claims. The distributions of the claims’ amounts and/or respective waiting times are driven by a Markov chain and the insurer can fit the premium rate in response. The risk-switching methodology generalizes some well-known approaches in the ruin theory; which enables us to treat numerous discrete- and continuous-time models simultaneously and in a unified way. An upper bound for ruin probabilities in a risk-switching setting is also investigated. (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:sgh:annals:i:51:y:2018:p:129-146