Runge--Kutta numerical methods for ruin probabilities in classical risk model
For actuaries and risk analysts, this provides a practical computational tool for ruin probability estimation, though it is an incremental application of existing numerical methods.
The paper develops Runge-Kutta numerical methods to compute ruin probabilities in the classical risk model, achieving accurate approximations for Gamma and Pareto claim-size distributions.
In this paper, we study Runge--Kutta methods for the computation of ruin probabilities in the classical risk model through the associated Volterra integro-differential equation. The proposed framework combines fourth-order one-step and two-step Runge--Kutta schemes with numerical quadrature formulas to approximate the convolution term. In particular, the convolution term is approximated using Newton--Cotes and Gaussian quadrature formulas, including Simpson's 1/3 rule and Pareto-adapted Gauss--Jacobi quadrature. An equivalent reformulation of the Volterra equation as a system of ordinary differential equations is also considered. Implementations for Gamma and Pareto claim-size distributions are developed. Numerical results are presented to illustrate the effectiveness of the proposed methods.