OPTIMAL DIVIDEND AND REINSURANCE STRATEGIES WITH FINANCING AND LIQUIDATION VALUE

Dingjun Yao, Hailiang Yang and Rongming Wang

ASTIN Bulletin, 2016, vol. 46, issue 2, 365-399

Abstract: This study investigates a combined optimal financing, reinsurance and dividend distribution problem for a big insurance portfolio. A manager can control the surplus by buying proportional reinsurance, paying dividends and raising money dynamically. The transaction costs and liquidation values at bankruptcy are included in the risk model. Under the objective of maximising the insurance company's value, we identify the insurer's joint optimal strategies using stochastic control methods. The results reveal that managers should consider financing if and only if the terminal value and the transaction costs are not too high, less reinsurance is bought when the surplus increases or dividends are always distributed using the barrier strategy.

Date: 2016
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