Background risk model in presence of heavy tails under dependence

Abstract

In this paper, we examine two problems on applied probability, which are directly connected with the dependence in presence of heavy tails. The first problem, is related to max-sum equivalence of the randomly weighted sums in bi-variate set up. Introducing a new dependence, called Generalized Tail Asymptotic Independence, we establish the bi-variate max-sum equivalence, under a rather general dependence structure, when the primary random variables follow distributions from the intersection of the dominatedly varying and the long tailed distributions. On base of this max-sum equivalence, we provide a result about the asymptotic behavior of two kinds of ruin probabilities, over a finite time horizon, in a bi-variate renewal risk model, with constant interest rate. The second problem, is related to the asymptotic behavior of the Tail Distortion Risk Measure, in a static portfolio, called Background Risk Model. In opposite to other approaches on this topic, we use a general enough assumption, that is based on multivariate regular variation.