Mean–variance investment and risk control strategies — A time-consistent approach via a forward auxiliary process

Yang Shen and Bin Zou

Insurance: Mathematics and Economics, 2021, vol. 97, issue C, 68-80

Abstract: We consider an optimal investment and risk control problem for an insurer under the mean–variance (MV) criterion. By introducing a deterministic auxiliary process defined forward in time, we formulate an alternative time-consistent problem related to the original MV problem, and obtain the optimal strategy and the value function to the new problem in closed-form. We compare our formulation and optimal strategy to those under the precommitment and game-theoretic framework. Numerical studies show that, when the financial market is negatively correlated with the risk process, optimal investment may involve short selling the risky asset and, if that happens, a less risk averse insurer short sells more risky asset.

Keywords: Optimal reinsurance; Jump–diffusion; Hamilton–Jacobi–Bellman equation; Time-consistent control; Precommitment (search for similar items in EconPapers)
JEL-codes: C61 G11 G22 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:97:y:2021:i:c:p:68-80

DOI: 10.1016/j.insmatheco.2021.01.004

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