Approximating the finite-time ruin probability under interest force (Q5956046)

Lower and upper bounds for the finite-time probability of ruin of a risk process with a constant interest force are derived. The time horizon is divided into small intervals, and two alternative premium income functions are considered where a fixed amount is received either at the beginning or at the end of the interval. This yields a lower bound and an upper bound for the continuous time probability of ruin when the premium income is received at a constant rate over time. For both bounds a renewal equation which depends on the distribution of the present value of the aggregate claim amount in a time interval is presented. This distribution is determined through a generalization of Panjer's recursive method. Numerical results in the cases where the claim heights have an exponential distribution or a Pareto distribution are presented.