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On The Randomized Schmitter Problem

Author

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  • Hansjörg Albrecher

    (University of Lausanne, Switzerland and Swiss Finance Institute)

  • José Carlos Araujo-Acuna

    (University of Bern)

Abstract

We revisit the classical Schmitter problem in ruin theory and consider it for randomly chosen initial surplus level U. We show that the computational simplification that is obtained for exponentially distributed U allows to connect the problem to m-convex ordering, from which simple and sharp analytical bounds for the ruin probability are obtained, both for the original (but randomized) problem and for extensions involving higher moments. In addition, we show that the solution to the classical problem with deterministic initial surplus level can conveniently be approximated via Erlang(k)-distributed U for sufficiently large k, utilizing the computational advantages of the advocated randomization approach.

Suggested Citation

  • Hansjörg Albrecher & José Carlos Araujo-Acuna, 2022. "On The Randomized Schmitter Problem," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 515-535, June.
    • Handle: RePEc:spr:metcap:v:24:y:2022:i:2:d:10.1007_s11009-021-09910-5
    DOI: 10.1007/s11009-021-09910-5
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