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Minimizing the Probability of Ruin When Claims Follow Brownian Motion with Drift

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  • S. David Promislow
  • Virginia Young

Abstract

We extend the work of Browne (1995) and Schmidli (2001), in which they minimize the probability of ruin of an insurer facing a claim process modeled by a Brownian motion with drift. We consider two controls to minimize the probability of ruin: (1) investing in a risky asset and (2) purchasing quota-share reinsurance. We obtain an analytic expression for the minimum probability of ruin and the corresponding optimal controls, and we demonstrate our results with numerical examples.

Suggested Citation

  • S. David Promislow & Virginia Young, 2005. "Minimizing the Probability of Ruin When Claims Follow Brownian Motion with Drift," North American Actuarial Journal, Taylor & Francis Journals, vol. 9(3), pages 110-128.
    • Handle: RePEc:taf:uaajxx:v:9:y:2005:i:3:p:110-128
    DOI: 10.1080/10920277.2005.10596214
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