Nonlinear Analysis: Modelling and Control, Vol. 26, No.

2, 259–270
https://doi.org/10.15388/namc.2021.26.20948
Press

Asymptotics for ultimate ruin probability

in a by-claim risk model∗

Aili Zhang , Shuang Liu , Yang Yang1

School of Statistics and Mathematics, Nanjing Audit University,
86 West Yushan Road, Nanjing, Jiangsu 211815, China
[email protected]; [email protected];
[email protected]

Received: December 29, 2019 / Revised: April 25, 2020 / Published online: March 1, 2021

Abstract. This paper considers a by-claim risk model with constant interest rate in which the main
claim and by-claim random vectors form a sequence of independent and identically distributed
random pairs with each pair obeying some certain dependence or arbitrary dependence structure.
Under the assumption of heavy-tailed claims, we derive some asymptotic formulas for ultimate
ruin probability. Some simulation studies are also performed to check the accuracy of the obtained
theoretical results via the crude Monte Carlo method.
Keywords: ultimate ruin probability, asymptotic behavior, main claim and by-claim, bivariate
regular variation.

1 Introduction
Consider a by-claim risk model in which every severe accident causes a main claim
accompanied with a secondary claim occurring after a period of delay. In such a model,
the claims {(Xi , Yi ); i ∈ N} form a sequence of independent and identically distributed
(i.i.d.) nonnegative random vectors with a generic random vector (X, Y ). Here, for each
i ∈ N, Xi and Yi represent the ith main claim (original claim) and its corresponding by-
claim (secondary claim), respectively, and they are highly dependent due to their being
caused by the same accident. The main claims Xi ’s arrive at times τi , i ∈ N, which
constitute a renewal counting process Nt = sup{n ∈ N: τn 6 t} for some t > 0
with mean function λ(t) = ENt . Denote the inter-arrival times by θi = τi − τi−1 ,
i ∈ N, which are i.i.d. nonnegative and nondegenerate at zero random variables. Let

∗ This research was supported by the Humanities and Social Sciences Foundation of the Ministry of

Education of China (No. 20YJA910006), Natural Science Foundation of the Jiangsu Higher Education
Institutions (No. 19KJA180003), PAPD, the High Level Talent Project of Six Talents Peak of Jiangsu Province
(No. JY-039), the Project of Construction for Superior Subjects of Mathematics/Statistics of Jiangsu Higher
Education Institutions.
1 Corresponding author.

c 2021 Authors. Published by Vilnius University Press

This is an Open Access article distributed under the terms of the Creative Commons Attribution Licence, which
permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source
are credited.
260 A. Zhang et al.

{Di ; i ∈ N} be the delay times of the by-claims, which also form a sequence of i.i.d.
nonnegative, but possibly degenerate at zero, random variables with common distribu-
tion H. Assume, as usual, that the three sequences {(Xi , Yi ); i ∈ N}, {τi ; i ∈ N}, and
{Di ; i ∈ N} are mutually independent. Denote by x > 0 the initial value of the insurer,
by c > 0 the constant premium rate, and by δ > 0 the constant interest rate. In this setting,
the discounted surplus process of an insurer at time t > 0 is

Zt Nt
X ∞
X
Ut = x + c e−δs ds − Xi e−δτi − Yi e−δ(τi +Di ) 1{τi +Di 6t} , (1)
0 i=1 i=1

where 1A is the indicator function of a set A. In this way, the finite-time and ultimate ruin
probabilities of model (1) can be defined, respectively, by
 
ψ(x; T ) = P inf Ut < 0 U0 = x for some T > 0
06t6T

and  
ψ(x; ∞) = lim ψ(x; T ) = P inf Ut < 0 U0 = x . (2)
T →∞ t>0

In insurance risk management, this kind of risk model may be of practical use. For
instance, a serious motor accident may cause two different kinds of claims, such as car
damage and passenger injuries even death. The former can be dealt with immediately,
while the latter needs an uncertain period of time to be settled. Hence, the claims for car
damage can be regarded as the main claims, while the claims for passenger injuries as the
by-claims.
[20] considered a discrete-time risk model allowing for the delay in claim settlements
called by-claims and used martingale techniques to derive some upper bounds for ruin
probabilities. Since then, many researchers have paid their attention to by-claim risk mod-
els. To name a few, [21, 22, 30] investigated some independent by-claim risk models, that
is, the main claim and by-claim sequences {Xi ; i ∈ N} and {Yi ; i ∈ N}, respectively,
consist of i.i.d. random variables, and they are mutually independent, too. However,
it is worth saying that the independence assumption between each main claim and its
corresponding by-claim makes the model unrealistic. For example, in the above motor
accident, the two corresponding claims for car damage and passenger injuries should be
highly dependent. In this direction, [14] studied a by-claim risk model with no interest
rate under the setting that each pair of the main claim and by-claim follow an asymptotic
independence structure or possess a bivariate regularly varying tail (hence, are asymptoti-
cally dependent). Further, [27] generalized Li’s result by extending the distributions of the
main claims and by-claims from the regular variation to the consistent variation in the case
that the two types of claims are asymptotically independent. They also complemented
another case that each pair of main claim and by-claim are arbitrarily dependent, but the
former dominates the latter. In the study of dependent by-claim risk models with positive
interest rate, [13] considered the case that all main claims and by-claims are pairwise
quasi-asymptotically independent and established an asymptotic formula for the ultimate

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Asymptotics for ultimate ruin probability in a by-claim risk model 261

ruin probability. Based on [8], the paper [13] further studied a dependent renewal risk
model with stochastic returns by allowing an insurer to invest its surplus into a portfolio
consisting of risk-free and risky assets. For more recent advances in dependent (by-claim)
risk models with interest rate, one can be referred to [2, 4, 9, 12, 15, 23–26, 28], among
others.
Motivated by [13] and [27], in this paper, we continue to study a dependent by-claim
risk model with interest rate in which the main claim and by-claim vectors {(Xi , Yi );
i ∈ N} are i.i.d., but each pair possesses some certain strong dependence or arbitrary
dependence structure. In such a model, we aim to establish some asymptotic formulas for
ultimate ruin probability.
In the rest of this paper, Section 2 presents the main results of this paper after prepar-
ing some preliminaries on some heavy-tailed distributions and dependence structures.
Section 3 proves our results, and Section 4 performs some simulation studies to check the
accuracy of our obtained theoretical results.

2 Preliminaries and main results

Throughout this paper, all limit relationships hold as x → ∞ unless stated otherwise.
For two positive functions f and g, we write f (x) . g(x) if lim sup f (x)/g(x) 6 1,
write f (x) ∼ g(x) if both f (x) . g(x) and g(x) . f (x), and write f (x) = o(g(x)) if
lim f (x)/g(x) = 0. For two real numbers x and y, denote by x ∨ y = max{x, y}.
When modeling extremal events, heavy-tailed risks (claims) have played an important
role in insurance and finance due to their ability to describe large claims efficiently. We
now introduce some commonly-used heavy-tailed distributions. A distribution V on R is
said to be consistently varying tailed, denoted by V ∈ C, if V (x) = 1 − V (x) > 0 for
all x and
V (xy) V (xy)
lim lim inf = 1 or lim lim sup = 1.
y↓1 x→∞ V (x) y↑1 x→∞ V (x)
Particularly, a distribution V on R is said to be regularly varying tailed with index −α,
denoted by V ∈ R−α , if
V (xy)
lim = y −α
x→∞ V (x)

for any y > 0 and some α > 0. It should be mentioned that many popular distributions,
such as the Pareto, Burr, Loggamma, and t-distributions, are all regularly varying tailed.
For any distribution V on R, define
∗
log V ∗ (y) log V (y)
JV+ = − lim and JV− = − lim
y→∞ log y y→∞ log y
∗
with V ∗ (y) = lim inf V (xy)/V (x) and V (y) = lim sup V (xy)/V (x). Clearly,
if V ∈ C, then limy↓1 V ∗ (y) = 1; and if V ∈ R−α for some α > 0, then JV+ = JV− = α.
For more discussions on heavy-tailed distributions and their applications to insurance and
finance, one can be referred to [1] and [6].

Nonlinear Anal. Model. Control, 26(2):259–270

262 A. Zhang et al.

Bivariate regular variation is a natural extension of the univariate one in the two-
dimensional case, which was firstly introduced by [5]. It provides an integrated framework
for modelling extreme risks (claims) with both heavy tails and asymptotic (in)dependence.
Recent works in this direction include [3, 7, 17, 18], among others.
A random vector (ξ, η) taking values in [0, ∞)2 is said to follow a distribution with
a bivariate regularly varying (BRV) tail if there exist a distribution V and a nondegenerate
(i.e. not identically 0) limit measure ν such that
 
1 1 v
P (ξ, η) ∈ · −→ ν(·) on [0, ∞]2 \ {(0, 0)}. (3)
V (x) x
v
In (3), the notation → denotes vague convergence meaning that the relation
 
1 1
lim P (ξ, η) ∈ B = ν(B)
V (x) x

holds for every Borel set B ⊂ [0, ∞]2 that is away from (0, 0) and ν-continuous (i.e.
its boundary ∂B has ν-measure 0). Related discussions on vague convergence can be
found in [16, Sect. 3.3.5]. Necessarily, the reference distribution V ∈ R−α for some
α > 0, for which case we write (ξ, η) ∈ BRV−α (ν, V ). By definition, for a random
vector (ξ, η) ∈ BRV−α (ν, V ), its marginal distributions satisfy

Fξ (x)
Fη (x)

lim = ν (1, ∞] × (0, ∞] and lim = ν (0, ∞] × (1, ∞] .
V (x) V (x)

Recall the by-claim risk model (1) in which {(Xi , Yi ); i ∈ N} is a sequence of i.i.d.
nonnegative random pairs with generic random vector (X, Y ) having marginal distribu-
tions F and G, respectively; {Di ; i ∈ N} is a sequence of i.i.d. nonnegative random
variables with generic random variable D and distribution H; Nt is a renewal counting
process with mean function λ(t); and {(Xi , Yi ); i ∈ N}, {Di ; i ∈ N}, and {Nt ; t > 0}
are mutually independent.
Now we are ready to state our main results regarding ultimate ruin probability. The
first result considers the case that each pair of main claim and its corresponding by-claim
follow a joint distribution with a bivariate regularly varying tail satisfying ν((1, ∞]2 ) > 0,
hence, they are highly dependent on each other.

Theorem 1. Consider the by-claim risk model (1). If (X, Y ) ∈ BRV−α (ν, F0 ) for some
reference distribution F0 and some α > 0 with ν((1, ∞]2 ) > 0, then

Z∞ Z∞
ψ(x; ∞) ∼ F0 (x) ν(As ) H(ds) · e−δαt λ(dt), (4)
0− 0−

where As = {(u, v) ∈ [0, ∞]2 : u + ve−δs > 1} for any s > 0.

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Asymptotics for ultimate ruin probability in a by-claim risk model 263

The second result relaxes the dependence between each pair of the two types of claims
as well as the common distribution of the main claims, but requires that the by-claims are
dominated by the main claims.
Theorem 2. Consider the by-claim risk model (1). If X and Y are arbitrarily dependent
and F ∈ C, G(x) = o(F (x)), then
Z∞
F xeδt λ(dt).


ψ(x; ∞) ∼ (5)
0−

In particular, if F ∈ R−α for some α > 0, then

Z∞
ψ(x; ∞) ∼ F (x) e−δαt λ(dt). (6)
0−

3 Proofs of main results

We shall adopt the recent method on the asymptotic tail behavior for infinite randomly
weighted sums to prove Theorems 1 and 2. The first lemma considers the infinite ran-
domly weighted sums of consistently varying tailed random variables, which can be found
in [10].
Lemma 1. Let {ξi ; i ∈ N} be a sequence of i.i.d. real-valued random variables with
common distribution V ∈ C and V (−x) = o(V (x)), and let {Θi ; i ∈ N} be another
sequence of nonnegative random variables independent of {ξi ; i ∈ N}. Assume that there
exists a small δ > 0 such that
∞ ∞
J + +δ
J − −δ

X X
E Θi V ∨ E Θi V < ∞ if 0 < JV+ < 1,
i=1 i=1
∞ ∞
J + +δ

1/(JV+ +δ) J − −δ

1/(JV+ +δ)
X X
E Θi V ∨ E Θi V <∞ if 1 6 JV+ < ∞.
i=1 i=1

Then,
∞ ∞
!
X X
P Θi ξi > x ∼ P(Θi ξi > x).
i=1 i=1

Proof of Theorem 1. On the one hand,

∞
X
Xi + Yi e−δDi e−δτi ,


Ut > x −
i=1
which implies
∞
!
X
−δDi
e−δτi > x =: ψ ∗ (x; ∞).


ψ(x; ∞) 6 P Xi + Yi e (7)
i=1

Nonlinear Anal. Model. Control, 26(2):259–270

264 A. Zhang et al.

Since (X, Y ) ∈ BRV−α (ν, F0 ) and is independent of D, we have

P X + Y e−δD > x

Z∞ Z∞
−δs


= P X +Ye > x H(ds) ∼ F0 (x) ν(As ) H(ds), (8)
0− 0−

where we used the dominated convergence theorem in the second step. Indeed, for any
s > 0, by (X, Y ) ∈ BRV−α (ν, F0 ),
P(X + Y e−δs > x) P(X + Y > x)
6
F0 (x) F0 (x)
→ ν (u, v) ∈ [0, ∞]2 : u + v > 1 ,


which is integrable with respect to H(ds). By (8), F0 ∈ R−α , and ν((1, ∞]2 ) > 0 we
have that {Xi + Yi e−δDi ; i ∈ N} constitutes a sequence of i.i.d. random variables with
regularly varying tails. Note that for any p > 0 and q > 0,
∞ ∞
X
p
q X

iq
E e−δτi = E e−δpθ1 < ∞.
i=1 i=1

Then by using Lemma 1 and (8) we obtain

∞
X
ψ ∗ (x; ∞) ∼ P Xi + Yi e−δDi e−δτi > x



i=1
∞ Z ∞
X
P X + Y e−δD > xeδt P(τi ∈ dt)


=
i=10−

Z∞ Z∞
F0 xeδt λ(dt)


∼ ν(As ) H(ds)
0− 0−
Z∞ Z∞
∼ F0 (x) ν(As ) H(ds) e−δαt λ(dt). (9)
0− 0−

Thus, we can derive the upper bound in (4) from (7) and (9).
On the other hand, by (2) and (9) we have
∞
!
X
−δDi

−δτi c
ψ(x; ∞) > P Xi + Yi e e >x+
i=1
δ
 
c
= ψ∗ x + ; ∞ (10)
δ
  Z∞ Z∞
c
∼ F0 x + ν(As ) H(ds) e−δαt λ(dt). (11)
δ
0− 0−

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Asymptotics for ultimate ruin probability in a by-claim risk model 265

By F0 ∈ R−α we have that for any 0 < ε < 1 and sufficiently large x,
 
c
> F0 (1 + ε)x ∼ (1 + ε)−α F0 (xt).


F0 x +
δ

This, by (11) and the arbitrariness of ε > 0, leads to the lower bound in (4).

The following lemma will be used in the proof of Theorem 2, which is due to [29].

Lemma 2. Let (X, Y ) be a nonnegative random vector with marginal distributions F

and G, respectively. If F ∈ C and G(x) = o(F (x)), then, regardless of arbitrary
dependence between X and Y ,

P(X + Y > x) ∼ F (x).

Proof of Theorem 2. The proof is much similar to that of Theorem 1 with some slight
modification. Note that by Lemma 2, for any s > 0,

P X + Y e−δs > x 6 P(X + Y > x) ∼ F (x),

which is integrable with respect to H(ds). Then, by the dominated convergence theorem,
relation (8) can be rewritten as

P X + Y e−δD > x ∼ F (x)

implying that X + Y e−δD has also a consistently varying tail. Again by using Lemma 1
we have
Z∞
∗
ψ (x; ∞) ∼ F xeδt λ(dt).


(12)
0−

Thus, the upper bound in (5) is derived from (7) and (12).
As for the lower bound of (5), for any ε > 0 and all x > c/(δε), by (12) and F ∈ C,
 
∗ c
ψ x+ ; ∞
δ
Z∞  Z∞
F ((1 + ε)xeδt )
 
c δt
F xeδt λ(dt)


∼ F x+ e λ(dt) >
δ δt
F (xe )
0− 0−
Z∞ Z∞
F xeδt λ(dt) ∼ F xeδt λ(dt),



& F ∗ (1 + ε) (13)
0− 0−

by letting firstly x → ∞ then ε ↓ 0. Therefore, the desired lower bound in (5) can be
obtained from (10) and (13).
If further F ∈ R−α , relation (6) follows from (5) immediately.

Nonlinear Anal. Model. Control, 26(2):259–270

266 A. Zhang et al.

4 Simulation studies
In this section, we use some numerical simulations to verify the accuracy of the asymp-
totic results for ψ(x; ∞) in Theorems 1 and 2. To this end, we adopt the crude Monte
Carlo (CMC) method to compare the simulated ruin probability ψ(x; ∞) in (2) with the
asymptotic one on the right hand side of (4) or (6).
Throughout this section, we specify the renewal counting process Nt in (1) to a ho-
mogeneous Poisson process with intensity λ1 > 0, and we suppose the delay time D
also follows the exponential distribution with parameter λ2 > 0. Although we estimate
the ultimate ruin probability ψ(x; ∞), when simulating it, we choose ψ(x; T ) as the
replacement for large T but fixed due to (2): ψ(x; ∞) = limT →∞ ψ(x; T ).
As for Theorem 1, assume that the random pair (X, Y ) possesses the Gumbel copula
of the form

1/γ
C(u, v) = exp − (− ln u)γ + (− ln v)γ , (u, v) ∈ [0, 1]2 ,

(14)

with parameter γ > 1.

It can be verified from [19, Lemma 5.2] that if (X, Y ) possesses a bivariate Gumbel
copula (14) with γ > 1 and the marginal distributions F = G ∈ R−α for some α >
0, then (X, Y ) ∈ BRV−α (ν, F0 ) for some nondegenerate limit measure ν and some
reference distribution F0 . Furthermore, according the discussions in [17, Sect. 4], it can
be calculated that for any Borel set B ⊂ [0, ∞]2 ,
ZZ

1/γ−2 −αγ−1 −αγ−1
ν(B) = α2 (γ − 1) s−αγ + t−αγ s t ds dt,
B

which implies ν((1, ∞] × (0, ∞]) = ν((0, ∞] × (1, ∞]) = 1. Thus, the reference
distribution F0 can be chosen as F = G. Let F0 be the Pareto distribution of the form
 −α
x
F0 (x) = 1 − 1 + , x > 0, (15)
σ
with parameters α > 0 and σ > 0, which implies F0 ∈ R−α .
The various parameters are set to:
• c = 1, δ = 0.005, T = 1000;
• λ1 = 0.2, λ2 = 0.25;
• γ = 2, α = 1.8, σ = 1.4.
For the simulated estimation ψ̂(x; T ) of the ultimate ruin probability ψ(x; ∞), we first
divide the time interval [0, T ] into n parts, and for the given tk = kT /n, k = 1, . . . , n, we
(j) (j) (j)
generate m samples Ntk , j = 1, . . . , m. Then, for the jth sample Ntk , generate Ntk
(j) (j)
pairs of (Xi , Yi ) following the Gumbel copula of the form (14) with marginal Pareto
(j) (j)
distributions F = G of the form (15), and generate the delay times Di , i = 1, . . . , Ntk .
(j)
Thus, the discounted surplus process Utk can be calculated according to (1). In this way,

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Asymptotics for ultimate ruin probability in a by-claim risk model 267

10-4
8 1.06
Asymptotic value =1.8, =1.4, =2 =1.8, =1.4, =2
Simulated value
7
1.04

Simulated/Asymptotic
1.02
Ruin Probability

4 1

3
0.98

0.96
1

0 0.94
1000 1500 2000 2500 3000 3500 1000 1500 2000 2500 3000 3500
Initial Wealth Initial Wealth

(a) (b)
Figure 1. Comparison of the simulated estimate and asymptotic value for ultimate ruin probability (left) and
their ratio (right) in Theorem 1.

the ultimate ruin probability ψ(x; ∞) can be estimated by

m
1 X
ψ̂(x; T ) = 1 (j) . (16)
m j=1 {mink=1,...,n Utk <0}

The asymptotic
R∞ value on the right-hand side Rof (4) is computed by numerical integration
with 0 ν(As )λ2 e−λ2 s ds ≈ 3.190531 and _0∞ e−δαt λ1 dt = λ1 /(δα) ≈ 22.222.
In Fig. 1, we compare the CMC estimate ψ̂(x; T ) in (16) with the asymptotic value
given by (4) on the left, and we show their ratio on the right. The CMC simulation is
conducted with the sample size m = 5 × 106 , the time step size T /n = 10−4 with
n = 107 , and the initial wealth x varying from 1000 to 3500. From Fig. 1(a) it can be
seen that with the increase of the initial wealth x, both of the estimates decrease gradually
and the two lines get closer. In Fig. 1(b), the ratios of the simulated and asymptotic values
are close to 1. The fluctuation is due to the poor performance of the CMC method, which
requires a sufficiently large sample size to meet the demands of high accuracy.
Next, we consider the situation of Theorem 2 in which, assume that X still follows
the Pareto distribution of form (15) with parameters α > 0 and σ > 0, but Y follows the
standard lognormal distribution

Zln x
1 2
G(x) = √ e−u /2
du, x > 0.
2π
−∞

Clearly, F ∈ R−α and G(x) = o(F (x)). The following simulation aims to check
the accuracy of relation (6) and the influence caused by different dependence structures
between X and Y . For this purpose, the Gumbel copula (14) and the Frank copula are used
to model the dependence between X and Y . Recall that a random pair (X, Y ) possesses

Nonlinear Anal. Model. Control, 26(2):259–270

268 A. Zhang et al.

10-4
1.06
9 Asymptotic value =1.6, =1, =1.2, =2 Gumbel Copula =1.6, =1, =1.2, =2
Simulated value(Gumbel) Frank Copula
8 Simulated value(Frank) 1.04

Simulated/Asymptotic
1.02
Ruin Probability

5
1

3 0.98

2
0.96
1

0 0.94
1000 1500 2000 2500 3000 3500 1000 1500 2000 2500 3000 3500
Initial Wealth Initial Wealth

(a) (b)
Figure 2. Comparison of the two simulated estimates under the Gumbel and Frank copulas and asymptotic
value for ultimate ruin probability (left) and their ratio (right) in Theorem 2.

the Frank copula of the form

(e−βu − 1)(e−βv − 1)
 
1
C(u, v) = − ln 1 + , (u, v) ∈ [0, 1]2 ,
β e−β − 1

for some parameter β > 0. In the terminology of [11], the Gumbel copula exhibits the
asymptotic dependence between two random variables, whereas the Frank copula shows
the asymptotic independence. Hence, the former reflects a type of strong dependence, but
the latter is relatively weak.
The various parameters are set to:

• c = 1, δ = 0.005, T = 1000;
• λ1 = 0.2, λ2 = 0.25;
• γ = 1.2, α = 1.6, σ = 1, β = 2.

We continue to simulate the ruin probability through the CMC method. The procedure
is similar to the previous case. We compare the two simulated estimates under the Gumbel
and Frank copulas with the asymptotic value in Fig. 2(a), and we present the two ratios in
Fig. 2(b). The two simulated estimates are obtained with a sample of size m = 5 × 106 ,
the time step size T /n = 10−4 with n = 107 , and x varying from 700 to 3500. From
Fig. 2(a) it can be seen that the two simulated lines in different copulas almost coincide,
so in the setting of Theorem 2, the ultimate ruin probability is insensitive to different
dependence structures between each pair of the main claim and by-claim. Figure 2(b)
indicates that the two convergences in different dependence structures are both robust.
This confirms Theorem 2.

Acknowledgment. The authors would like to thank the two anonymous referees for
their careful reading and helpful comments on the previous version of our paper.

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Asymptotics for ultimate ruin probability in a by-claim risk model 269

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