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Analysis of the Compound Poisson Surplus Model with Liquid Reserves, Interest and Dividends

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  • Cai, Jun
  • Feng, Runhuan
  • Willmot, Gordon E.

Abstract

The paper incorporates liquid reserves, interest and dividends in the compound Poisson surplus model. When an insurer's surplus is below a certain level, it is kept as liquid reserves. As the surplus attains the level, the excess of the surplus above the level will earn interest at a constant interest rate. If the surplus continues to surpass a higher level, the excess of the surplus above this higher level will be paid out as dividends to the insurer's shareholders at a constant dividend rate or by the threshold strategy. The lower and higher levels are called the liquid reserve level and the threshold level, respectively. This paper is to discuss the interactions of the liquid reserve level, the interest rate, the threshold level, and the dividend rate in the proposed risk model by studying the expected discounted penalty function and the expected present value of dividends paid up to the time of ruin. We derive expressions for the solutions to both quantities via the approach of integro-differential equation systems. We show that the dividend-penalty identity (Gerber et al. 2006, ASTIN Bulletin) still holds for the threshold strategy with liquid reserves and interest. We illustrate these results by deriving explicit solutions to the probability of ultimate ruin under the threshold strategy when claim sizes are exponentially distributed. In the end, we also discuss the impact of the liquid reserve level, the interest rate, the threshold level, and the dividend rate on the ruin probability by numerical examples.

Suggested Citation

  • Cai, Jun & Feng, Runhuan & Willmot, Gordon E., 2009. "Analysis of the Compound Poisson Surplus Model with Liquid Reserves, Interest and Dividends," ASTIN Bulletin, Cambridge University Press, vol. 39(1), pages 225-247, May.
  • Handle: RePEc:cup:astinb:v:39:y:2009:i:01:p:225-247_00
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    Citations

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    Cited by:

    1. Zan Yu & Lianzeng Zhang, 2024. "Computing the Gerber-Shiu function with interest and a constant dividend barrier by physics-informed neural networks," Papers 2401.04378, arXiv.org.
    2. Sooie-Hoe Loke & Enrique Thomann, 2018. "Numerical Ruin Probability in the Dual Risk Model with Risk-Free Investments," Risks, MDPI, vol. 6(4), pages 1-13, October.
    3. Franck Adékambi & Essodina Takouda, 2020. "Gerber–Shiu Function in a Class of Delayed and Perturbed Risk Model with Dependence," Risks, MDPI, vol. 8(1), pages 1-25, March.
    4. Schmidli, Hanspeter, 2015. "Extended Gerber–Shiu functions in a risk model with interest," Insurance: Mathematics and Economics, Elsevier, vol. 61(C), pages 271-275.
    5. Yue He & Reiichiro Kawai & Yasutaka Shimizu & Kazutoshi Yamazaki, 2022. "The Gerber-Shiu discounted penalty function: A review from practical perspectives," Papers 2203.10680, arXiv.org, revised Dec 2022.
    6. He, Yue & Kawai, Reiichiro & Shimizu, Yasutaka & Yamazaki, Kazutoshi, 2023. "The Gerber-Shiu discounted penalty function: A review from practical perspectives," Insurance: Mathematics and Economics, Elsevier, vol. 109(C), pages 1-28.
    7. Eric C. K. Cheung & David Landriault, 2012. "On a Risk Model with Surplus-dependent Premium and Tax Rates," Methodology and Computing in Applied Probability, Springer, vol. 14(2), pages 233-251, June.
    8. Cheung, Eric C.K., 2011. "A generalized penalty function in Sparre Andersen risk models with surplus-dependent premium," Insurance: Mathematics and Economics, Elsevier, vol. 48(3), pages 384-397, May.
    9. Franck Adékambi & Essodina Takouda, 2022. "On the Discounted Penalty Function in a Perturbed Erlang Renewal Risk Model With Dependence," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 481-513, June.

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