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Robust optimal investment–reinsurance strategies for an insurer with multiple dependent risks

Jingyun Sun, Haixiang Yao and Zhilin Kang

Insurance: Mathematics and Economics, 2019, vol. 89, issue C, 157-170

Abstract: This paper considers a robust optimal investment and reinsurance problem with multiple dependent risks for an Ambiguity-Averse Insurer (AAI), who is uncertain about the model parameters. We assume that the surplus of the insurance company can be allocated to the financial market consisting of one risk-free asset and one risky asset whose price process satisfies square root factor process. Under the objective of maximizing the expected utility of the terminal surplus, by adopting the technique of stochastic control, closed-form expressions of the robust optimal strategy and the corresponding value function are derived. The verification theorem is also provided. Finally, by presenting some numerical examples, the impact of some parameters on the optimal strategy is illustrated and some economic explanations are also given. We find that the robust optimal reinsurance strategies under the generalized mean–variance premium are very different from that under the variance premium principle. In addition, ignoring model uncertainty risk will lead to significant utility loss for the AAI.

Keywords: Ambiguity-averse insurer; Robust optimal control; Multiple dependent risks; Square-root factor process; Suboptimal strategy; Utility loss (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:89:y:2019:i:c:p:157-170

DOI: 10.1016/j.insmatheco.2019.09.006

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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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