Gambler's ruin problem in a Markov-modulated jump-diffusion risk model

Yuxuan Liu, Zhengjun Jiang and Yixin Qu

Scandinavian Actuarial Journal, 2022, vol. 2022, issue 8, 682-694

Abstract: When an insurance company's risk reserve is governed by a Markov-modulated jump-diffusion risk model, we study gambler's ruin problem in terms of two-sided ruin probability that the insurance company shall be ruined before its risk reserve reaches an upper barrier level $ b\in (0, \infty ) $ b∈(0,∞). We employ Banach contraction principle and q-scale functions to confirm the two-sided ruin probability to be the only fixed point of a contraction mapping and construct an iterative algorithm of approximating the two-sided ruin probability. We find that the two-sided ruin probability and Lipschitz constant in the contraction mapping depend on the upper barrier level b, premium rate per squared volatility, Markov intensity rate per squared volatility, Poisson intensity rate per squared volatility and the mean value of claim per unit of time. Finally, we present a numerical example with two regimes to show the efficiency of the iterative algorithm.

Date: 2022
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DOI: 10.1080/03461238.2021.2025145

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