Phase-type approximations perturbed by a heavy-tailed component for the Gerber-Shiu function of risk processes with two-sided jumps

Abstract

We consider in this paper a risk reserve process where the claims and gains arrive according to two independent Poisson processes. While the gain sizes are phase-type distributed, we assume instead that the claim sizes are phase-type perturbed by a heavy-tailed component; that is, the claim size distribution is formally chosen to be phase-type with large probability 1 − ǫ and heavy-tailed with small probability ǫ.We analyze the seminal Gerber-Shiu function coding the joint distribution of the time to ruin, the surplus immediately before ruin, and the deficit at ruin. We derive its value as an expansion with respect to powers of ǫ with known coefficients and we construct approximations from the first two terms of the aforementioned series. The main idea is based on the so-called fluid embedding that allows to put the considered risk process into the framework of spectrally negative Markov-additive processes and use its fluctuation theory developed in [18].

The Gerber-Shiu discounted penalty function: A review from practical perspectives

“…The scale matrix can be evaluated analytically in some instances [76]. In addition, the scale matrix has been found useful for the computation of the Gerber-Shiu function [128] for the case with two-sided jumps using the technique known as fluid embedding.…”

Randomized observation periods for compound Poisson risk model with capital injection and barrier dividend

“…represents the Laplace transformation of the ruin time. The relevant references of Gerber-Shiu function can be found in Gerber and Shiu [33], Lin et al [34], Willmot and Dickson [35], Li et al [36], Huang et al [37], Zhang and Su [38], Preischl and Thonhauser [39], Zhang et al [40], and Palmowski and Vatamidou [41].…”