CALCULATION OF INSURANCE COMPANY RUIN PROBABILITY USING THE MONTE CARLO METHOD WITH ASSET PRICE MOVEMENTS FOLLOWING THE BINOMIAL MODEL

• Main Author: Putri Reihani, Annida
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/81914
• Institution: Institut Teknologi Bandung

Insurance companies face significant bankruptcy risks if not properly managed. Therefore, it is crucial to model and analyze ruin probabilities to ensure financial stability. This study aims to calculate ruin probabilities by modeling the surplus of insurance companies considering investments in assets following a binomial model. This model accounts for investment in both risky and risk-free assets, as well as various parameters such as initial capital, premiums, claim size, and dividends distributed. Based on probability theory and stocahstic processess, Monte Carlo simulations are used to analyze the sensitivity of ruin probabilities to variations in these parameters. The result show that ruin probabilities decrease with an increase in initial capital and premiums, and increase with higher claim sizes and dividens. Additionally, investments in risk-free assets result in lower ruin probabilities compared to investments in risky assets. The findings indicate that insurance companies can reduce bankruptcy risks by selecting appropriate investment instruments and managing parameters that influence ruin probabilities.