Efficient simulation of ruin probabilities when claims are mixtures of heavy and light tails

DOI10.1007/S11009-020-09799-6MaRDI QIDQ2065463zbMATH OpenOpenAlexFDO

Authors Martin Bladt, Eleni Vatamidou, Hansjörg Albrecher

Publication date 7 January 2022

Published in Methodology and Computing in Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2006.07447

zbMATH Keywords

insurance risk theoryruin probabilityrare event simulationCramér-Lundberg model

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Mathematical modeling or simulation for problems pertaining to game theory, economics, and finance (91-10) Applications of renewal theory (reliability, demand theory, etc.) (60K10) Risk models (general) (91B05)

Abstract: We consider the classical Cram'er-Lundberg risk model with claim sizes that are mixtures of phase-type and subexponential variables. Exploiting a specific geometric compound representation, we propose control variate techniques to efficiently simulate the ruin probability in this situation. The resulting estimators perform well for both small and large initial capital. We quantify the variance reduction as well as the efficiency gain of our method over another fast standard technique based on the classical Pollaczek-Khinchine formula. We provide a numerical example to illustrate the performance, and show that for more time-consuming conditional Monte Carlo techniques, the new series representation also does not compare unfavorably to the one based on the Pollaczek- Khinchine formula.

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Cited in

(1)

• Efficient simulation of finite horizon problems in queueing and insurance risk

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