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On the time value of ruin. With discussion and a reply by the authors. (English) Zbl 1081.60550
Summary: This paper studies the joint distribution of the time of ruin, the surplus immediately before ruin, and the deficit at ruin. The time of ruin is analyzed in terms of its Laplace transforms, which can naturally be interpreted as discounting. Hence the classical risk theory model is generalized by discounting with respect to the time of ruin. We show how to calculate an expected discounted penalty, which is due at ruin and may depend on the deficit at ruin and on the surplus immediately before ruin. The expected discounted penalty, considered as a function of the initial surplus, satisfies a certain renewal equation, which has a probabilistic interpretation. Explicit answers are obtained for zero initial surplus, very large initial surplus, and arbitrary initial surplus if the claim amount distribution is exponential or a mixture of exponentials. We generalize Dickson’s formula, which expresses the joint distribution of the surplus immediately prior to and at ruin in terms of the probability of ultimate ruin. Explicit results are obtained when dividends are paid out to the stockholders according to a constant barrier strategy.

60K10 Applications of renewal theory (reliability, demand theory, etc.)
60G44 Martingales with continuous parameter
60K05 Renewal theory
62E10 Characterization and structure theory of statistical distributions
62P05 Applications of statistics to actuarial sciences and financial mathematics
91B30 Risk theory, insurance (MSC2010)
91G50 Corporate finance (dividends, real options, etc.)
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