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The Effect of the Retention Limit on the Risk Reserve

Published online by Cambridge University Press:  29 August 2014

Maria de Lourdes Centeno
Maria de Lourdes Centeno*
Affiliation:
Technical University of Lisbon
*
Instituto Superior de Economia e Gestão, Universidade Técnica de Lisboa, Rua Miguel Lupi, 20, 1200 Lisboa
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Abstract

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This paper is devoted to the study of the initial reserve, as a function of the retention limit, needed to assure that the probability of ruin, at the end of a certain period of time, is not higher than an agreed value, for an excess of loss treaty. To assess the probability of ruin, the normal and the normal power approximation are used. It is shown that the initial reserve is not in general an increasing function of the retention, having a minimum under fair assumptions.

Keywords

Risk reserveexcess of lossnormal power approximationnormal approximation
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 25 , Issue 1 , May 1995 , pp. 67 - 74
Copyright
Copyright © International Actuarial Association 1995

References

Beard, R. E., Pentikäinen, T. and Pesonen, E. (1984) Risk Theory. Chapman and Hall, London, third edition.CrossRefGoogle Scholar
Daykin, C.D., Pentikäinen, T. and Pesonen, M. (1994) Practical Risk Theory for Actuaries. Chapman and Hall, London.Google Scholar