Optimal investment and excess-of-loss reinsurance problem with delay for an insurer under Heston’s SV model

Chunxiang A and Zhongfei Li

Insurance: Mathematics and Economics, 2015, vol. 61, issue C, 181-196

Abstract: This paper considers an optimal investment and excess-of-loss reinsurance problem with delay for an insurer under Heston’s stochastic volatility (SV) model. Suppose that the insurer is allowed to purchase excess-of-loss reinsurance and invests her surplus in a financial market consisting of one risk-free asset and one risky asset whose price process is described by Heston’s SV model. Under the consideration of the performance-related capital inflow/outflow, the wealth process of the insurer is modeled by a stochastic differential delay equation. The insurer’s aim is to maximize the expected exponential utility of the combination of terminal wealth and average performance wealth. By adopting the dynamic programming approach, the optimal strategies and the optimal value functions are derived explicitly under two cases: the investment-reinsurance case and the investment-only case. Finally, some numerical examples and sensitivity analysis are provided for our results.

Keywords: Excess-of-loss reinsurance; Heston’s stochastic volatility model; Stochastic differential delay equation; Hamilton–Jacobi–Bellman equation; Insurer (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167668715000062
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:61:y:2015:i:c:p:181-196

DOI: 10.1016/j.insmatheco.2015.01.005

Access Statistics for this article

Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().