Optimal reinsurance and asset allocation under regime switching

Bong-Gyu Jang and Kyeong Tae Kim

Journal of Banking & Finance, 2015, vol. 56, issue C, 37-47

Abstract: We investigate optimal reinsurance and asset allocation strategies for an insurer who is concerned about changes in economic conditions. Numerical examples with carefully estimated parameters show that optimal reinsurance and asset allocation strategies for an insurer could be non-myopic, meaning that they could be affected by future market conditions, and change drastically according to current economic conditions. However, an insurer with poor financial prudence might be myopic so that the optimal strategies are similar to those of the single-regime model. We also show that drastic changes of the correlation between stock prices and insurance claims, investment opportunity, and loading factors might significantly affect optimal reinsurance strategy, asset allocation strategy, or both, of insurance companies.

Keywords: Optimal reinsurance; Optimal portfolio; Asset allocation; Insurance claims; Correlation change; Regime switching (search for similar items in EconPapers)
JEL-codes: C61 G11 G22 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:56:y:2015:i:c:p:37-47

DOI: 10.1016/j.jbankfin.2015.03.002

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