Optimal proportional reinsurance and investment with transaction costs, I: Maximizing the terminal wealth

Zhang, Xin-Li, Zhang, Ke-Cun and Yu, Xing-Jiang

Insurance: Mathematics and Economics, 2009, vol. 44, issue 3, pages 473-478

Abstract: We consider a problem of optimal reinsurance and investment with multiple risky assets for an insurance company whose surplus is governed by a linear diffusion. The insurance company's risk can be reduced through reinsurance, while in addition the company invests its surplus in a financial market with one risk-free asset and n risky assets. In this paper, we consider the transaction costs when investing in the risky assets. Also, we use Conditional Value-at-Risk (CVaR) to control the whole risk. We consider the optimization problem of maximizing the expected exponential utility of terminal wealth and solve it by using the corresponding Hamilton-Jacobi-Bellman (HJB) equation. Explicit expression for the optimal value function and the corresponding optimal strategies are obtained.

Keywords: Conditional; value-at-risk; Exponential; utility; Hamilton-Jacobi-Bellman; equation; Proportional; reinsurance; Transaction; costs (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:insuma:v:44:y:2009:i:3:p:473-478

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