Title :
Importance sampling for actuarial cost analysis under a heavy traffic model
Author :
Blanchet, Jose ; Lam, Henry
Author_Institution :
Columbia Univ., New York, NY, USA
Abstract :
We explore a bottom-up approach to revisit the problem of cash flow modeling in insurance business, and propose a methodology to efficiently simulate the related tail quantities, namely the fixed-time and the finite-horizon ruin probabilities. Our model builds upon the micro-level contract structure issued by the insurer, and aims to capture the bankruptcy risk exhibited by the aggregation of policyholders. This distinguishes from traditional risk theory that uses random-walk-type model, and also enhances risk evaluation in actuarial pricing practice by incorporating the dynamic arrivals of policyholders in emerging cost analysis. The simulation methodology relies on our model´s connection to infinite-server queues with non-homogeneous cost under heavy traffic. We will construct a sequential importance sampler with provable efficiency, along with large deviations asymptotics.
Keywords :
costing; insurance; probability; risk analysis; actuarial cost analysis; bankruptcy risk; cash flow modeling; heavy traffic model; importance sampling; insurance business; probability analysis; random walk type model; risk theory; Analytical models; Companies; Computational modeling; Contracts; Insurance; Probability;
Conference_Titel :
Simulation Conference (WSC), Proceedings of the 2011 Winter
Conference_Location :
Phoenix, AZ
Print_ISBN :
978-1-4577-2108-3
Electronic_ISBN :
0891-7736
DOI :
10.1109/WSC.2011.6148073