- About this Journal ·
- Abstracting and Indexing ·
- Aims and Scope ·
- Annual Issues ·
- Article Processing Charges ·
- Articles in Press ·
- Author Guidelines ·
- Bibliographic Information ·
- Citations to this Journal ·
- Contact Information ·
- Editorial Board ·
- Editorial Workflow ·
- Free eTOC Alerts ·
- Publication Ethics ·
- Reviewers Acknowledgment ·
- Submit a Manuscript ·
- Subscription Information ·
- Table of Contents

Discrete Dynamics in Nature and Society

Volume 2013 (2013), Article ID 128796, 8 pages

http://dx.doi.org/10.1155/2013/128796

## Studies on a Double Poisson-Geometric Insurance Risk Model with Interference

^{1}School of Science, Shandong Jiaotong University, Jinan 250023, China^{2}School of Insurance, Shandong University of Finance and Economics, Jinan 250014, China

Received 11 January 2013; Accepted 5 March 2013

Academic Editor: Hua Su

Copyright © 2013 Yujuan Huang and Wenguang Yu. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

#### Abstract

This paper mainly studies a generalized double Poisson-Geometric insurance risk model. By martingale and stopping time approach, we obtain adjustment coefficient equation, the Lundberg inequality, and the formula for the ruin probability. Also the Laplace transformation of the time when the surplus reaches a given level for the first time is discussed, and the expectation and its variance are obtained. Finally, we give the numerical examples.

#### 1. Introduction

In insurance mathematics, the classical risk model has been the center of focus for decades [1–3]. The surplus in the classical model at time can be expressed as where is the initial capital, is the constant rate of premium, and is a Poisson process, with Poisson rate denoting the number of claims up to time . The individual claim sizes , independent of , are independent and identically distributed nonnegative random variables with common distribution function with mean , variance , and moment generating function .

But in the Poisson process, the expectation and variance are equal. This is obviously not consistent with actual situation. So recently there is a huge amount of literature devoted to the generalization of the classical model in different ways. Lu and Li [4] consider a Markov-modulated risk model in which the claim interarrivals, claim sizes, and premiums are influenced by an external Markovian environment process. Tan and Yang [5] discuss the compound binomial risk model with an interest on the surplus under a constant dividend barrier and periodically paying dividends. Vellaisamy and Upadhye [6] study the convolution of compound negative binomial distributions with arbitrary parameters. The exact expression and also a random parameter representation are obtained. Cossette et al. [7] present a compound Markov binomial model, which is an extension of the compound binomial model. The compound Markov binomial model is based on the Markov Bernoulli process which introduces dependency between claim occurrences. Recursive formulas are provided for the computation of the ruin probabilities over finite- and infinite-time horizons. A Lundberg exponential bound is derived for the ruin probability, and numerical examples are also provided. Yang and Zhang [8] investigate a Sparre Andersen risk model in which the inter-claim times are generalized Erlang(n) distributed. Czarna and Palmowski [9] focus on a general spectrally negative Levy insurance risk process. For this class of processes, they analyze the so-called Parisian ruin probability, which arises when the surplus process stays below 0 longer than a fixed amount of time .

In this paper, we will consider a double Poisson-Geometric risk model with diffusion in which the arrival of policies is a Poisson-Geometric process and the claims process follows the compound Poisson-Geometric process. For more details and new developments on the Poisson-Geometric risk model, the interested readers can refer to [10–13].

The rest of the paper is organized as follows. In Section 2, the risk model is introduced. In Section 3, we obtain the adjustment coefficient equation and the formula of ruin probability. Then we present the effect of the related parameters on the adjustment coefficient. In Section 4, using the martingale method, the time when the surplus reaches a level firstly is considered, and the expectation and its variance are obtained. Numerical illustrations are also given.

#### 2. The Risk Model

*Definition 1 (see [10]). * A distribution is said to be Poisson-Geometric distributed, denoted by , if its generating function is
where , . Note that if , then the Poisson-Geometric distribution degenerates into Poisson distribution.

*Definition 2 (see [10]). * Let and , then is said to be a Poisson-Geometric process with parameters , if it satisfies (1); (2) has stationary and independent increments; (3), is a Poisson-Geometric distributed with parameters , , and

The corresponding moment generating function of is .

Then the double Poisson-Geometric risk model with interference is defined as
where is the number of premium up to time and follows a Poisson-Geometric distribution with parameters and ; is the number of claims up to time and follows a Poisson-Geometric distribution with parameters and . is the standard Brownian motion and is a constant, representing the diffusion volatility parameters. Throughout this paper, we assume that , , , and are mutually independent.

In order to ensure the insurance company's stable operation, we assume
which implies

Let
Then is the relative security loading factor.

For the risk model (3), the time to ruin, denoted by , is defined as
And define the ruin probability with an initial surplus by , namely,

#### 3. The Ruin Probability

Define the profits process by ; that is, Obviously we have

Let Then

Lemma 3. * The profits process has the following properties:*(1)*;*(2)* has stationary and independent increments.*

Theorem 4. * For the profits process , there is a function such that
*

*Proof. *Consider
Let
Then we obtain (13).

Theorem 5. *Equation
**
has a unique positive solution , and (16) is said to be an adjustment coefficient equation of the risk model (3) and is said to be an adjustment coefficient.*

*Proof. * From (15), we have , and since
which imply

It is easy to see that the moment generating function is an increasing function. Due to , there exists an such that ; that is, when . So when , and is a convex function with . Then it can be shown that has a unique positive solution on .

*Example 6. * Suppose , , , , and , , . By (16), we obtain the adjustment coefficient . Moreover, we give the effect of related parameters on adjustment coefficient ; see Figures 1, 2, 3, 4, 5, 6, and 7.

For the profits process , let .

Theorem 7. * is a martingale, where .*

*Proof. *Consider

Theorem 8. * If and satisfy the equation , then the surplus is a martingale. *

*Proof. *Consider

Lemma 9. * The ruin time is the stopping time of . *

Theorem 10. * For for all , the ultimate ruin probability satisfies
**
where . *

*Proof. * For a fixed time , is a bounded stopping time; using the theorem of martingale and stopping time, we have
which implies
by expectation on both sides of (23), and letting , we can obtain (21).

Theorem 11. * The probability of the risk model (3) is
*

*Proof. * is a ruin time and for a fixed time , is a bounded stopping time. Using the theorem of martingale and stopping time, we have
Let , we have

If is an indicator function of the event , we get

Since
by the law of large numbers, when , (a.s.). By dominated convergence theorem, we have
Then when in (26), we can obtain (24).

Corollary 12. *Consider
*

*Example 13. *Suppose , , and . By (30), we give the effect of adjustment coefficient on the upper bound of the ruin probability; see Figure 8.

#### 4. The Time to Reach a Given Level

Let Then is the time when the surplus reaches a given level firstly.

Theorem 14. * The Laplace transform of is
**
where and satisfy
*

*Proof. * For the surplus process , using the theorem of martingale and stopping time, we see that is a stopping rime of . Let . By Theorem 8, the surplus process is a martingale; hence, we have
implying that
Since , so we get

Theorem 15. * The expectation and variance of satisfy
*

*Proof. *Let . Using Theorem 11, we have . Then
Let . We have

*Example 16. * Suppose , , , , , , , and . By (37), we give the effect of related parameters on and ; see Figures 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, and 21.

#### Acknowledgments

Y. Huang thanks the three anonymous referees for the thoughtful comments and suggestions that greatly improved the presentation of this paper. This work was supported by the National Natural Science Foundation of China (Grant no. 11171187, Grant no. 10921101), National Basic Research Program of China (973 Program, Grant no. 2007CB814906), Natural Science Foundation of Shandong Province (Grant no. ZR2012AQ013, Grant no. ZR2010GL013), Humanities and Social Sciences Project of the Ministry Education of China (Grant no. 10YJC630092, Grant no. 09YJC910004), and 2013 Major Project Cultivation Plan of Shandong Jiaotong University.

#### References

- J. Grandell,
*Aspects of Risk Theory*, Springer, New York, NY, USA, 1991. View at Publisher · View at Google Scholar · View at MathSciNet - H. U. Gerber,
*An Introduction to Mathematical Risk Theory*, vol. 8 of*S.S. Heubner Foundation Monograph Series*, Huebner Foundation, Philadelphia, Pa, USA, 1979. View at MathSciNet - S. Asmussen,
*Ruin Probabilities*, vol. 2, World Scientific Publishing Co. Inc., River Edge, NJ, USA, 2000. View at Publisher · View at Google Scholar · View at MathSciNet - Y. Lu and S. Li, “On the probability of ruin in a Markov-modulated risk model,”
*Insurance: Mathematics & Economics*, vol. 37, no. 3, pp. 522–532, 2005. View at Publisher · View at Google Scholar · View at MathSciNet - J. Tan and X. Yang, “The compound binomial model with a constant dividend barrier and periodically paid dividends,”
*Journal of Systems Science & Complexity*, vol. 25, no. 1, pp. 167–177, 2012. View at Publisher · View at Google Scholar · View at MathSciNet - P. Vellaisamy and N. S. Upadhye, “On the sums of compound negative binomial and gamma random variables,”
*Journal of Applied Probability*, vol. 46, no. 1, pp. 272–283, 2009. View at Publisher · View at Google Scholar · View at MathSciNet - H. Cossette, D. Landriault, and E. Marceau, “Ruin probabilities in the compound Markov binomial model,”
*Scandinavian Actuarial Journal*, no. 4, pp. 301–323, 2003. View at Publisher · View at Google Scholar · View at MathSciNet - H. Yang and Z. M. Zhang, “Gerber-Shiu discounted penalty function in a Sparre Andersen model with multi-layer dividend strategy,”
*Insurance: Mathematics and Economics*, vol. 42, no. 3, pp. 984–991, 2008. View at Publisher · View at Google Scholar · View at MathSciNet - I. Czarna and Z. Palmowski, “Ruin probability with Parisian delay for a spectrally negative Lévy risk process,”
*Journal of Applied Probability*, vol. 48, no. 4, pp. 984–1002, 2011. View at MathSciNet - Z. C. Mao and J. E. Liu, “A risk model and ruin probability with a compound Poisson-geometric process,”
*Acta Mathematicae Applicatae Sinica*, vol. 28, no. 3, pp. 419–428, 2005. View at MathSciNet - Z. C. Mao and J. E. Liu, “The expression of ruin probability under claim numbers with compound Poisson-Geometric process,”
*Chinese Journal of Management Science*, vol. 15, no. 5, pp. 23–28, 2007. - J. D. Liao, R. Z. Gong, Z. M. Liu, and J. Z. Zou, “The Geber-Shiu discounted penalty function in the Poisson geometric risk model,”
*Acta Mathematicae Applicatae Sinica*, vol. 30, no. 6, pp. 1076–1085, 2007. View at MathSciNet - X. Lin and N. Li, “Ruin probability, optimal investment and reinsurance strategy for an insurer with compound Poisson-geometric risk process,”
*Mathematica Applicata. Yingyong Shuxue*, vol. 24, no. 1, pp. 174–180, 2011. View at MathSciNet