Optimal investment strategies for participating contracts

Hongcan Lin, David Saunders and Chengguo Weng

Insurance: Mathematics and Economics, 2017, vol. 73, issue C, 137-155

Abstract: Participating contracts are popular insurance policies, in which the payoff to a policyholder is linked to the performance of a portfolio managed by the insurer. We consider the portfolio selection problem of an insurer that offers participating contracts and has an S-shaped utility function. Applying the martingale approach, closed-form solutions are obtained. The resulting optimal strategies are compared with portfolio insurance hedging strategies (CPPI and OBPI). We also study numerical solutions of the portfolio selection problem with constraints on the portfolio weights.

Keywords: Participating contract; Utility maximization; Martingale and dual approach; Concavification technique; Stochastic control (search for similar items in EconPapers)
JEL-codes: C20 C61 G11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:73:y:2017:i:c:p:137-155

DOI: 10.1016/j.insmatheco.2017.02.001

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