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Keywords:

  • compound Poisson model;
  • absolute ruin;
  • Gerber–Shiu function;
  • liquid reserves;
  • varying borrowing rates

In this paper, we study the absolute ruin probability in the compound Poisson model with credit and debit interests and liquid reserves. At first, we derive a system of integro-differential equations with certain boundary conditions for the Gerber–Shiu function. Then, applying these results, we obtain asymptotical formula of the absolute ruin probability for subexponentially claims. Furthermore, when the claims are exponentially distributed, we obtain the explicit expressions for the Gerber–Shiu function and the exact solution for the absolute ruin probability. Finally, we discuss the absolute ruin probability by using the Gerber–Shiu function when debit interest is varying. In the case of exponential individual claim, we give the explicit expressions for the Gerber–Shiu function. Copyright © 2012 John Wiley & Sons, Ltd.