Ruin Probabilities as Recurrence Sequences in a Discrete-Time Risk Process

Abstract The theory of linear recurrence sequences is applied to obtain an explicit formula for the ultimate ruin probability in a discrete-time risk process. It is assumed that the claims distribution is arbitrary but has finite support $$\varvec{\{0,1,\ldots ,m+1\}}$$ <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:mrow> <mml:mo>{</mml:mo> <mml:mn>0</mml:mn> <mml:mo>,</mml:mo> <mml:mn>1</mml:mn> <mml:mo>,</mml:mo> <mml:mo>…</mml:mo> <mml:mo>,</mml:mo> <mml:mi>m</mml:mi> <mml:mo>+</mml:mo> <mml:mn>1</mml:mn> <mml:mo>}</mml:mo> </mml:mrow> </mml:math> , for some integer $$\varvec{m\ge 1}$$ <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML"> <mml:mrow> <mml:mi>m</mml:mi> <mml:mo>≥</mml:mo> <mml:mn>1</mml:mn> </mml:mrow> </mml:math> . The method requires finding the zeroes of an m degree polynomial and solving a system of m linear equations. An approximation is derived and some numerical results and plots are provided as examples.