7. Hitting Times for Diffusion Processes and Stochastic Models in Insurance
Published Online: 4 APR 2013
Copyright © 2013 by John Wiley & Sons, Inc.
Applied Diffusion Processes from Engineering to Finance
How to Cite
Janssen, J., Manca, O. and Manca, R. (2013) Hitting Times for Diffusion Processes and Stochastic Models in Insurance, in Applied Diffusion Processes from Engineering to Finance, John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118578339.ch7
- Published Online: 4 APR 2013
- Published Print: 4 MAR 2013
Print ISBN: 9781848212497
Online ISBN: 9781118578339
- asset liability management (ALM);
- diffusion processes;
- hitting times;
- Merton's model;
- stochastic insurance
This chapter deals with some basic models in stochastic insurance, such as risk theory, survival firm models and asset liability management (ALM), showing the strong interaction with models in physics and finance. It recalls some basic results on hitting times for diffusion processes. The financial literature has been developed both from theoretical and practical points of view. The financial literature has been developed both from theoretical and practical points of view. It consists of calculating the default probability of a firm. It takes into account the Merton's model. The chapter shows how an elementary diffusion model scan is used to modelize risk situations for insurance companies and how the preceding results on hitting times lead to the calculation of risk indicators imposed by the new rules of Solvency II for insurance companies and in a similar way by Basel II and the future Basel III for banks.