Minimization of absolute ruin probability under negative correlation assumption

Zongxia Liang and Mingsi Long

Insurance: Mathematics and Economics, 2015, vol. 65, issue C, 247-258

Abstract: In this paper we consider the problem of minimizing the absolute ruin probability of an insurance company. The managers of the company control investment amount and risk exposure to minimize the absolute ruin probability. A negative correlation between insurer’s liabilities and capital gains in financial market is introduced. Under this negative correlation assumption, the explicit forms of the solutions and optimal strategies to this problem for all different parameters are derived. We find that the solutions of this problem are S-shaped and the optimal strategies fail to be monotonic or continuous.

Keywords: Absolute ruin probability; Optimal proportional reinsurance; Optimal investment; Negative correlation; HJB equation; IM13; IB91; IM52; IE53 (search for similar items in EconPapers)
JEL-codes: G11 G22 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:65:y:2015:i:c:p:247-258

DOI: 10.1016/j.insmatheco.2015.10.003

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