Minimizing the Probability of Ruin When Claims Follow Brownian Motion with Drift |
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Authors: | S David Promislow Virginia R Young |
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Institution: | 1. Dept. of Mathematics and Statistics , York University , 4700 Keele St. , Toronto, Ontario, M3J 1P3 , Canada;2. Dept. of Mathematics , University of Michigan , 525 E. University Ave. , Ann Arbor, MI, 48109 |
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Abstract: | Abstract We extend the work of Browne (1995) and Schmidli (2001), in which they minimize the probability of ruin of an insurer facing a claim process modeled by a Brownian motion with drift. We consider two controls to minimize the probability of ruin: (1) investing in a risky asset and (2) purchasing quota-share reinsurance. We obtain an analytic expression for the minimum probability of ruin and the corresponding optimal controls, and we demonstrate our results with numerical examples. |
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