Mathematical Risk Modeling: an Application in Three Cases of Insurance Contracts

Abstract

Risk is often defined as the degree of uncertainty regarding the future. This general definition of risk can be extended to define different types of risks according to the source of the underlying uncertainty. In this context, the objective of this paper is to mathematically model risks in insurance. The choice of methods and techniques that allow the construction of the model significantly influence the responses obtained. We approach these different issues by modeling risks in three base cases: basic insurance of goods, life insurance, and financial risk insurance. Our findings show that risk modeling allowed us to better measure certain events, but did not allow us to predict them accurately due to a lack of information. Therefore, good modeling of the risk determinants makes it possible to modify the probability associated with the occurrence of a risk. While it cannot predict exactly when a risk will occur, it can help make decisions that will reduce its effects.