Abstract:

In this talk, we will discuss a drawdown-based regime-switching Levy insurance model in which the underlying drawdown process is used to model the level of financial distress over time, and determines the regime-switching transitions. Two-sided exit quantities, safety loading conditions and connections with other existing risk models will be presented. Furthermore, with a random surrender time taking into consideration, it is shown numerically that there exists an optimal threshold of the drawdown size for triggering the transitions.