Author(s): Weiyin Fei, Hongjian Liu, Xia Dengfeng
Opler and Titman , Briys and De Varenne , Ma et al.  and the references therein. A solvency model in the presence of costs of financial distress has been introduced in references . Based on the Markov-modulated market , the solvency ratio model is further discussed in Xia et al. . In this paper, we will using the pricing formula for European options to study the insurer's solvency ratio, as we know, in 1973, Black and Scholes  provided the famous pricing formula for European options under the assumptions that the risk-free bond price 0 : [0, ] ∈ "