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Optimal time-consistent investment and reinsurance policies for mean-variance insurers

Yan Zeng and Zhongfei Li

Insurance: Mathematics and Economics, 2011, vol. 49, issue 1, 145-154

Abstract: This paper investigates the optimal time-consistent policies of an investment-reinsurance problem and an investment-only problem under the mean-variance criterion for an insurer whose surplus process is approximated by a Brownian motion with drift. The financial market considered by the insurer consists of one risk-free asset and multiple risky assets whose price processes follow geometric Brownian motions. A general verification theorem is developed, and explicit closed-form expressions of the optimal polices and the optimal value functions are derived for the two problems. Economic implications and numerical sensitivity analysis are presented for our results. Our main findings are: (i) the optimal time-consistent policies of both problems are independent of their corresponding wealth processes; (ii) the two problems have the same optimal investment policies; (iii) the parameters of the risky assets (the insurance market) have no impact on the optimal reinsurance (investment) policy; (iv) the premium return rate of the insurer does not affect the optimal policies but affects the optimal value functions; (v) reinsurance can increase the mean-variance utility.

Keywords: Time-consistency; Continuous-time; investment; and; reinsurance; choice; Mean-variance; criterion; Insurer; Hamilton-Jacobi-Bellman; equation (search for similar items in EconPapers)
Date: 2011
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Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

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