On the decomposition of the absolute ruin probability in a perturbed compound Poisson surplus process with debit interest

Jun Cai () and Hailiang Yang ()

Annals of Operations Research, 2014, vol. 212, issue 1, 77 pages

Abstract: We consider a compound Poisson surplus process perturbed by diffusion with debit interest. When the surplus is below zero or the company is on deficit, the company is allowed to borrow money at a debit interest rate to continue its business as long as its debt is at a reasonable level. When the surplus of a company is below a certain critical level, the company is no longer profitable, we say that absolute ruin occurs at this situation. In this risk model, absolute ruin may be caused by a claim or by oscillation. Thus, the absolute ruin probability in the model is decomposed as the sum of two absolute ruin probabilities, where one is the probability that absolute ruin is caused by a claim and the other is the probability that absolute ruin is caused by oscillation. In this paper, we first give the integro-differential equations satisfied by the absolute ruin probabilities and then derive the defective renewal equations for the absolute ruin probabilities. Using these defective renewal equations, we derive the asymptotical forms of the absolute ruin probabilities when the distributions of claim sizes are heavy-tailed and light-tailed. Finally, we derive explicit expressions for the absolute ruin probabilities when claim sizes are exponentially distributed. Copyright Springer Science+Business Media, LLC 2014

Keywords: Compound Poisson process; Brownian motion; Debit interest; Absolute ruin; Defective renewal equation; Key renewal theorem; Itô formula; Subexponential distribution; Long-tailed distribution; Confluent hypergeometric function (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10479-011-1032-y

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