Ruin probabilities as functions of the roots of a polynomial

Abstract

A new formula for the ultimate ruin probability in the Cramér–Lundberg risk process is provided when the claims are assumed to follow a finite mixture of m Erlang distributions. Using the theory of recurrence sequences, the method proposed here shifts the problem of finding the ruin probability to the study of an associated characteristic polynomial and its roots. The found formula is given by a finite sum of terms, one for each root of the polynomial, and allows for yet another approximation of the ruin probability. No constraints are assumed on the multiplicity of the roots and that is illustrated via a couple of numerical examples.

Keywords

• ruin probability
• Cramér–Lundberg risk model
• Erlang mixture distribution
• recurrence sequences
• 91B05
• 91G05