The Optimal Strategy of Reinsurance-Investment Problem for an Insurer with Dynamic Income Under Stochastic Interest Rate

Sheng Delei ()
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Sheng Delei: Faculty of Applied Mathematics, Shanxi University of Finance & Economics, Taiyuan030006, China

Journal of Systems Science and Information, 2016, vol. 4, issue 3, 244-257

Abstract: This paper considers the reinsurance-investment problem for an insurer with dynamic income to balance the profit of insurance company and policy-holders. The insurer’s dynamic income is given by a net premium minus a dynamic reward budget item and the net premium is obtained according to the expected premium principle. Applying the stochastic control technique, a Hamilton-Jacobi-Bellman equation is established under stochastic interest rate model and the explicit solution is obtained by maximizing the insurer’s power utility of terminal wealth. In addition, the comparison with corresponding results under constant interest rate helps us to understand the role and influence of stochastic interest rates more in-depth.

Keywords: reward budget; stochastic interest rates; dynamic income; HJB equation (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:4:y:2016:i:3:p:244-257:n:5

DOI: 10.21078/JSSI-2016-244-14

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