A transient Cramér–Lundberg model with applications to credit risk

Abstract This paper considers a variant of the classical Cramér–Lundberg model that is particularly appropriate in credit context, with distinguishing feature it corresponds to finite number obligors. The focus on computing ruin probability, i.e. probability initial reserve, increased by interest received from obligors and decreased losses due defaults, drops below zero. As well as an exact analysis (in terms transforms) this asymptotic performed, including efficient importance-sampling-based simulation approach. base extended multiple dimensions: (i) we consider which there may, addition, be do not correspond (ii) then analyze individual are coupled via regime switching mechanism, (iii) extend so between reserve process behaves Brownian motion rather than deterministic drift, (iv) finally set-up groups statistically identical