Dependent Risks and Ruin Probabilities in Insurance
Abstract
Classical risk process models in insurance rely on independency. However, especially when modeling natural events, this assumption is very restrictive. This paper proposes a new approach to introducing dependency structures between events into the model and investigates its effects on a crucial parameter for insurance companies, the probability of ruin. Explicit formulas, numerical simulations and sensitivity results for dependence are established for different dependency models of first-order markovian type indicating that for various scenarios dependency considerably increases the probability of ruin.