Robust Dividend, Financing, and Reinsurance Strategies Under Model Uncertainty with Proportional Transaction Costs

Guohui Guan, Lin He, Zongxia Liang, Yang Liu and Litian Zhang

North American Actuarial Journal, 2024, vol. 28, issue 2, 261-284

Abstract: This article studies the robust dividend, financing, and reinsurance strategies for an ambiguity aversion insurer (AAI) under model uncertainty. The AAI controls its liquid reserves by purchasing proportional reinsurance, paying dividends, and issuing new equity. We consider model uncertainty and suppose that the AAI is ambiguous about the liquid reserves process, which is described by a class of equivalent probability measures. The objective of the AAI is to maximize the expected present value of the dividend payouts minus the discounted costs of issuing new equity before bankruptcy under the worst-case scenario. A detailed proof of the verification theorem is shown for the robust singular-regular problem. We obtain the explicit solutions of the robust strategies, which are classified into three cases. Numerical results are also presented to show the impacts of the ambiguity aversion coefficient, and the transaction cost factor.

Date: 2024
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DOI: 10.1080/10920277.2023.2186430

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