Potential measures and expected present value of operating costs until ruin in renewal risk models with general interclaim times

Eric C.K. Cheung and Runhuan Feng

Scandinavian Actuarial Journal, 2019, vol. 2019, issue 5, 355-386

Abstract: In this paper, a Sparre Andersen risk process with arbitrary interclaim time distribution is considered. We analyze various ruin-related quantities in relation to the expected present value of total operating costs until ruin, which was first proposed by Cai et al. [(2009a). On the expectation of total discounted operating costs up to default and its applications. Advances in Applied Probability 41(2), 495–522] in the piecewise-deterministic compound Poisson risk model. The analysis in this paper is applicable to a wide range of quantities including (i) the insurer's expected total discounted utility until ruin; and (ii) the expected discounted aggregate claim amounts until ruin. On one hand, when claims belong to the class of combinations of exponentials, explicit results are obtained using the ruin theoretic approach of conditioning on the first drop via discounted densities (e.g. Willmot [(2007). On the discounted penalty function in the renewal risk model with general interclaim times. Insurance: Mathematics and Economics 41(1), 17–31]). On the other hand, without any distributional assumption on the claims, we also show that the expected present value of total operating costs until ruin can be expressed in terms of some potential measures, which are common tools in the literature of Lévy processes (e.g. Kyprianou [(2014). Fluctuations of L'evy processes with applications: introductory lectures, 2nd ed. Berlin Heidelberg: Springer-Verlag]). These potential measures are identified in terms of the discounted distributions of ascending and descending ladder heights. We shall demonstrate how the formulas resulting from the two seemingly different methods can be reconciled. The cases of (i) stationary renewal risk model and (ii) surplus-dependent premium are briefly discussed as well. Some interesting invariance properties in the former model are shown to hold true, extending a well-known ruin probability result in the literature. Numerical illustrations concerning the expected total discounted utility until ruin are also provided.

Date: 2019
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DOI: 10.1080/03461238.2018.1525423

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