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Ruin probability in finite time

In: Statistical Tools for Finance and Insurance

Author

Listed:
  • Krzysztof Burnecki

    (Wrocław University of Technology, Hugo Steinhaus Center for Stochastic Methods)

  • Marek Teuerle

    (Wrocław University of Technology, Institute of Mathematics and Computer Science)

Abstract

In examining the nature of the risk associated with a portfolio of business, it is often of interest to assess how the portfolio may be expected to perform over an extended period of time. One approach involves the use of ruin theory (Panjer and Willmot, 1992). Ruin theory is concerned with the excess of the income (with respect to a portfolio of business) over the outgo, or claims paid. This quantity, referred to as insurer’s surplus, varies in time. Specifically, ruin is said to occur if the insurer’s surplus reaches a specified lower bound, e.g. minus the initial capital. One measure of risk is the probability of such an event, clearly reflecting the volatility inherent in the business. In addition, it can serve as a useful tool in long range planning for the use of insurer’s funds.

Suggested Citation

  • Krzysztof Burnecki & Marek Teuerle, 2011. "Ruin probability in finite time," Springer Books, in: Pavel Cizek & Wolfgang Karl Härdle & Rafał Weron (ed.), Statistical Tools for Finance and Insurance, chapter 10, pages 329-348, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-18062-0_10
    DOI: 10.1007/978-3-642-18062-0_10
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