Ruin theory in a financial corporation model with credit risk.

*(English)*Zbl 1055.91059Summary: This paper builds a new risk model for a firm which is sensitive to its credit quality. A modified Jarrow, Lando and Turnbull model (Markov chain model) [R. A. Jarrow, D. Lando and S. M. Turnbull, “A Markov model for the term structure of credit risk spreads”, Rev. Financ. Stud. 10, 481–523 (1997)] is used to model the credit rating. Recursive equations for finite time ruin probability and distribution of ruin time are derived. Coupled Volterra type integral equation systems for ultimate ruin probability, severity of ruin and joint distribution of surplus before and after ruin are also obtained. Some numerical results are included.

##### MSC:

91B30 | Risk theory, insurance (MSC2010) |

91B28 | Finance etc. (MSC2000) |

##### Keywords:

Credit rating; Markov chain; Default time; Severity of ruin; Recursive equation; Volterra type integral equation system
Full Text:
DOI

##### References:

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