Scientific Program > Topic 3 > Session 3O >
Presentation 3O2. Net Value and Ruin Theory by Spreadsheet

Presenter
Tim Dunne (South Africa) tdunne@maths.uct.ac.za

 

Presentation Abstract

Use of a spreadsheet package assists students in comprehending the net value of an insured claims process in continuous time. A structured exercise enters and sets process constants {K, u, ?}. These constants designate the number of policies issued, initial funds, average number of claims per policy per year, mean claim size, standard deviation of claim size, and premium loading.

Simulated claim times and sizes are simulated claims total, and an income stream is tracked and graphed. The expected net value and probability intervals for observed process values are plotted. Designation of Profit, Loss and Ruin events allows for first and subsequent entries into ruin, net value at moment of ruin, restarts at zero for each ruin, and record (extreme) loss.

Simple extensions allow the effects of reinsurance (proportional and excess of loss) to impact upon the process. By overlaying the graphs of original and reinsured processes, students can appreciate the major decision issues in reinsurance.

Further spreadsheet modifications lead to simulation of simultaneous multiple claim events. This change is effected by invoking compound distributions, for sums of stochastically determined numbers of independent claim observations. Conditioning allows the effect of dependency between claims to be brought into the model.

 

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