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Simulating Ruin Probabilities for a Class of Semimartingales by Importance Sampling Methods

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  • Jostein Paulsen
  • Bo Normann Rasmussen

Abstract

We consider the problem of finding the probability of ruin when the risk process is assumed to be a special semimartingale with absolutely continuous characteristics. We show how the generalized Girsanov theorem can be used in connection with Monte Carlo simulation to obtain estimates of the ruin probabilities. It is shown by both analytical and numerical examples that these methods can be significantly better than ordinary simulations provided the new measure is chosen with some care.

Suggested Citation

  • Jostein Paulsen & Bo Normann Rasmussen, 2003. "Simulating Ruin Probabilities for a Class of Semimartingales by Importance Sampling Methods," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2003(3), pages 178-216.
    • Handle: RePEc:taf:sactxx:v:2003:y:2003:i:3:p:178-216
    DOI: 10.1080/03461230110106354
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