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Expected utility of the drawdown-based regime-switching risk model with state-dependent termination

dc.contributor.authorLandriault, David
dc.contributor.authorLi, Bin
dc.contributor.authorLi, Shu
dc.date.accessioned2018-03-21T13:41:58Z
dc.date.available2018-03-21T13:41:58Z
dc.date.issued2018-03-01
dc.descriptionThe final publication is available at Elsevier via http://dx.doi.org/10.1016/j.insmatheco.2017.12.008 © 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/en
dc.description.abstractIn this paper, we model an entity’s surplus process X using the drawdown-based regime-switching (DBRS) dynamics proposed in Landriault et al. (2015a). We introduce the state-dependent termination time to the model, and provide rationale for its introduction in insurance contexts. By examining some related potential measures, we first derive an explicit expression for the expected terminal utility of the entity in the DBRS model with Brownian motion dynamics. The analysis is later generalized to time-homogeneous Markov framework, where the spectrally negative Lévy model is also discussed as a special example. Our results show that, even considering the impact of the termination risk, the DBRS strategy can still outperform its counterparts in either single regime strategy. This study shows that the DBRS model is not myopic, as it not only helps to recover from significant losses, but also may improve the insurer’s overall welfare.en
dc.description.sponsorshipNatural Sciences and Engineering Research Council of Canada [341316, 05828]en
dc.identifier.urihttp://dx.doi.org/10.1016/j.insmatheco.2017.12.008
dc.identifier.urihttp://hdl.handle.net/10012/13049
dc.language.isoenen
dc.publisherElsevieren
dc.rightsAttribution-NonCommercial-NoDerivatives 4.0 International*
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/*
dc.subjectBrownian motionsen
dc.subjectDrawdown-based regime-switching modelen
dc.subjectPotential measuresen
dc.subjectState-dependent terminationen
dc.subjectTime-homogeneous Markov processesen
dc.titleExpected utility of the drawdown-based regime-switching risk model with state-dependent terminationen
dc.typeArticleen
dcterms.bibliographicCitationLandriault, D., Li, B., & Li, S. (2018). Expected utility of the drawdown-based regime-switching risk model with state-dependent termination. Insurance: Mathematics and Economics, 79, 137–147. https://doi.org/10.1016/j.insmatheco.2017.12.008en
uws.contributor.affiliation1Faculty of Mathematicsen
uws.contributor.affiliation2Statistics and Actuarial Scienceen
uws.peerReviewStatusRevieweden
uws.scholarLevelFacultyen
uws.typeOfResourceTexten
uws.typeOfResourceTexten

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