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The equivalence of two tax processes

Ghanim, DA; Loeffen, R; Watson, A; (2019) The equivalence of two tax processes. Insurance: Mathematics and Economics 10.1016/j.insmatheco.2019.10.002. (In press).

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Abstract

We introduce two models of taxation, the latent and natural tax processes, which have both been used to represent loss-carry-forward taxation on the capital of an insurance company. In the natural tax process, the tax rate is a function of the current level of capital, whereas in the latent tax process, the tax rate is a function of the capital that would have resulted if no tax had been paid. Whereas up to now these two types of tax processes have been treated separately, we show that, in fact, they are essentially equivalent. This allows a unified treatment, translating results from one model to the other. Significantly, we solve the question of existence and uniqueness for the natural tax process, which is defined via an integral equation. Our results clarify the existing literature on processes with tax.

Type: Article
Title: The equivalence of two tax processes
DOI: 10.1016/j.insmatheco.2019.10.002
Publisher version: https://doi.org/10.1016/j.insmatheco.2019.10.002
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: math.PR, math.PR, q-fin.PR, 60G51, 91B30, 93E20, 91G80
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Statistical Science
URI: https://discovery.ucl.ac.uk/id/eprint/10083965
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