Panagiotis T. Artikis and Constantinos T. Artikis
Risk control programs of modern complex organizations make extensive use of stochastic models. The purpose of this paper is to consider a class of stochastic models in severity…
Abstract
Purpose
Risk control programs of modern complex organizations make extensive use of stochastic models. The purpose of this paper is to consider a class of stochastic models in severity and risk duration reduction operations.
Design/methodology/approach
A new stochastic model is formulated which is shown to be of some importance in fundamental risk management operations. The investigation of such a model is based on classical methods of characteristic functions theory.
Findings
A stochastic model having the form of the product of two non‐negative and independent random variables is formulated. A characterization of the distribution of such a model is established. Moreover, applications of the proposed stochastic model in risk control programs of organizations are provided.
Research limitations/implications
The difficulty of evaluating the corresponding distribution function, which extends the practical applicability of the proposed stochastic model still remains.
Originality/value
The formulated stochastic model consists of a strong analytical tool for investigating operations of risk control programs.