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Optimal reinsurance policies with two reinsurers in continuous time

Hui Meng, Ming Zhou (mzhou.act@gmail.com) and Tak Kuen Siu

Economic Modelling, 2016, vol. 59, issue C, 182-195

Abstract: An optimal reinsurance problem of an insurer is studied in a continuous-time model, where insurance risk is partly transferred to two reinsurers, one adopting the expected-value premium principle and another one using the variance premium principle. The insurer aims to select an optimal reinsurance arrangement to minimize the probability of ruin. To provide an easy-to-implement solution to the problem, (semi)-explicit expressions for the optimal reinsurance strategies as well as the minimal ruin probabilities are derived for several claims distributions. Numerical studies including a real-data example based on the Danish fire insurance losses are provided to illustrate the solution of the problem. Our empirical results based on the Danish data reveal that the heavy-right-tailedness of claims distributions has a significant impact on the optimal reinsurance strategies and has a quite pronounced impact on the residual risk described by the minimal ruin probability.

Keywords: Expected value premium principle; Variance premium principle; Ruin probability; Proportional reinsurance; Excess of loss reinsurance; Dynamic programming principle; Heavy-tailed claims (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:59:y:2016:i:c:p:182-195

DOI: 10.1016/j.econmod.2016.07.009

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