 Robust investment for insurers with correlation ambiguityBingqian Cheng, Hao Wang and Lihong Zhang The Quarterly Review of Economics and Finance, 2024, vol. 93, issue C, 247-257 Abstract: This paper investigates the investment decision of insurers when there is ambiguous correlation between the financial market and the insurance business. The robust decision model that accommodates correlation ambiguity between a risky financial asset and the insurer’s non-tradable surplus is solved under the G-expectation framework. We find that correlation ambiguity leads to a more conservative investment strategy in financial assets, providing a plausible explanation for insurers’ under- or zero investment in the financial market during normal economic times. We also show that the range of priors set of correlation coefficients can be statistically inferred, and insurers will quit the financial market when the range of priors set exceeds a certain level, which is more likely to happen when the remaining investment horizon is long. Keywords: Robust optimization; Decision analysis; Correlation ambiguity; Insurer’s surplus process; G-expectation theory (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:93:y:2024:i:c:p:247-257 DOI: 10.1016/j.qref.2023.11.002 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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