ABSTRACT
Consider an insurer who makes risky investments and hence faces both insurance and financial risks. The insurance business is described by a discrete-time risk model modulated by a stochastic environment that poses systemic and systematic impacts on both the insurance and financial markets. This paper endeavors to quantitatively understand the interplay of the two risks in causing ruin of the insurer. Under the bivariate regular variation framework, we obtain an asymptotic formula to describe the impacts on the insurer's solvency of the two risks and of the stochastic environment.
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Acknowledgments
The authors would like to thank two anonymous referees for their very careful reading of the paper and thank Dr. Zhongyi Yuan at The Pennsylvania State University for his useful comments. This work was started during a research visit of Yang Yang to The University of Iowa. He would like to thank the Department of Statistics and Actuarial Science for its excellent hospitality.
Disclosure statement
No potential conflict of interest was reported by the authors.