Optimal control of excess-of-loss reinsurance and investment for insurers under a CEV model

Ailing Gu, Xianping Guo, Zhongfei Li and Yan Zeng

Insurance: Mathematics and Economics, 2012, vol. 51, issue 3, 674-684

Abstract: The optimal excess-of-loss reinsurance and investment strategies under a constant elasticity of variance (CEV) model for an insurer are considered in this paper. Assume that the insurer’s surplus process is approximated by a Brownian motion with drift, the insurer can purchase excess-of-loss reinsurance and invest his (or her) surplus in a financial market consisting of one risk-free asset and one risky asset whose price is modeled by a CEV model, and the objective of the insurer is to maximize the expected exponential utility from terminal wealth. Two problems are studied, one being a reinsurance-investment problem and the other being an investment-only problem. Explicit expressions for optimal strategies and optimal value functions of the two problems are derived by stochastic control approach and variable change technique. Moreover, several interesting results are found, and some sensitivity analysis and numerical simulations are provided to illustrate our results.

Keywords: Excess-of-loss reinsurance; Constant elasticity of variance; Optimal investment strategy; Hamilton–Jacobi–Bellman equation; Insurer (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167668712001084
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:3:p:674-684

DOI: 10.1016/j.insmatheco.2012.09.003

Access Statistics for this article

Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().