English, Article edition: Diffusion models of insurer net worth: can one dimension suffice? Jiandong Ren

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Bookmark: http://trove.nla.gov.au/version/8810
Physical Description
  • article
Language
  • English

Edition details

Title
  • Diffusion models of insurer net worth: can one dimension suffice?
Author
  • Jiandong Ren
Physical Description
  • article
Notes
  • Purpose – The paper aims to develop a realistic, yet flexible model of insurer net worth. Design/​methodology/​approach – Inspired by and as an improvement to Powers, the paper develops a multi-dimensional diffusion model to describe the operations of an insurance company. The paper then explores whether or not this multi-dimensional model can be approximated conservatively by a homogeneous one-dimensional diffusion. Findings – The multi-dimensional model that is proposed can be approximated conservatively by a homogeneous one-dimensional diffusion, which is clearly much easier to solve analytically or numerically than a multi-dimensional system. Also, the Laplace transform of the desired first-passage time (to ruin) distribution can be stated analytically. Practical implications – The analysis provides a theoretical model of the relationship between the insurer's ruin-time distribution and many aspects of the insurer's operations, including loss-payout patterns, premium-earning patterns, and investment strategy. Originality/​value – The paper reveals that a multi-dimensional model can be approximated by a homogeneous one-dimensional diffusion to achieve a realistic and flexible model that can be used practically.
  • Insurance, Modelling, Net worth, Transfer processes
  • RePEc:eme:jrfpps:v:6:y:2005:i:2:p:98-117
Language
  • English
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