Open-loop equilibrium reinsurance-investment strategy under mean–variance criterion with stochastic volatility

Tingjin Yan and Hoi Ying Wong

Insurance: Mathematics and Economics, 2020, vol. 90, issue C, 105-119

Abstract: This paper investigates the open-loop equilibrium reinsurance-investment (RI) strategy under general stochastic volatility (SV) models. We resolve difficulties arising from the unbounded volatility process and the non-negativity constraint on the reinsurance strategy. The resolution enables us to derive the existence and uniqueness result for the time-consistent mean variance RI policy under both situations of constant and state-dependent risk aversions. We apply the general framework to popular SV models including the Heston, the 3/2 and the Hull–White models. Closed-form solutions are obtained for the aforementioned models under constant risk aversion, and the non-leveraged models under state-dependent risk aversion.

Keywords: Mean–variance; Time-inconsistency; Open-loop stochastic control; Stochastic volatility model; Reinsurance-investment; State-dependent risk aversion (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:90:y:2020:i:c:p:105-119

DOI: 10.1016/j.insmatheco.2019.11.003

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