Issue: 2015/Vol.25/No.3, Pages 17-38

RUIN PROBABILITY OF A DISCRETE-TIME RISK PROCESS WITH PROPORTIONAL REINSURANCE AND INVESTMENT FOR EXPONENTIAL AND PARETO DISTRIBUTIONS

Helena Jasiulewicz^{}, Wojciech Kordecki^{}

**Cite as: **H. Jasiulewicz, W. Kordecki. Ruin probability of a discrete-time risk process with proportional reinsurance and investment for exponential and Pareto distributions. Operations Research and Decisions 2015: 25(3), 17-38. DOI 10.5277/ord150302

** Abstract**

The paper focuses on a quantitative analysis of the probability of ruin in a finite time for a discrete risk process with proportional reinsurance and investment of the financial surplus. It is assumed that the total loss on a unit interval has either a light-tailed distribution – exponential distribution or a heavy-tailed distribution – Pareto distribution. The ruin probabilities for the finite-horizons 5 and 10 were determined from recurrence equations. Moreover, the upper bound of the ruin probability is given for the exponential distribution based on the Lundberg adjustment coefficient. This adjustment coefficient does not exist for the Pareto distribution, hence an asymptotic approximation is given for the ruin probability when the initial capital tends to infinity. The numerical results obtained are illustrated by tables and figures.

** Keywords: **discrete time risk process, ruin probability, proportional reinsurance, Lundberg’s inequality, regularly varying tail

**Received: **18 September 2014 **Accepted: ** 9 July 2015