Asymptotic expansion of the expected discounted penalty function in a two-scalestochastic volatility risk model.

Abstract: In this Master thesis, we use a singular and regular perturbation theory to derive an analytic approximation formula for the expected discounted penalty function. Our model is an extension of Cramer–Lundberg extended classical model because we consider a more general insurance risk model in which the compound Poisson risk process is perturbed by a Brownian motion multiplied by a stochastic volatility driven by two factors- which have mean reversion models. Moreover, unlike the classical model, our model allows a ruin to be caused either by claims or by surplus’ fluctuation. We compute explicitly the first terms of the asymptotic expansion and we show that they satisfy either an integro-differential equation or a Poisson equation. In addition, we derive the existence and uniqueness conditions of the risk model with two stochastic volatilities factors.