Optimal Reinsurance and Derivative-Based Investment Decisions for Insurers with Mean-Variance Preference

Haiying Zhou and Huainian Zhu ()
Additional contact information
Haiying Zhou: School of Port and Shipping Management, Guangzhou Maritime University, Guangzhou 510725, China
Huainian Zhu: School of Economics, Guangdong University of Technology, Guangzhou 510520, China

Mathematics, 2024, vol. 12, issue 13, 1-20

Abstract: In our study, we investigate reinsurance issues and optimal investment related to derivatives trading for a mean-variance insurer, employing game theory. Our primary objective is to identify strategies that are time-consistent. In particular, the insurer has the flexibility to purchase insurance in proportion to its needs, explore new business, and engage in capital market investments. This is under the assumption that insurance companies’surplus capital adheres to the classical Cramér-Lundberg model. The capital market is made up of risk-free bonds, equities, and derivatives, with pricing dependent on the underlying stock’s basic price and volatility. To obtain the most profitable expressions and functions for the associated investment strategies and time guarantees, we solve a system of expanded Hamilton–Jacobi–Bellman equations. In addition, we delve into scenarios involving optimal investment and reinsurance issues with no derivatives trading. In the end, we present a few numerical instances to display our findings, demonstrating that the efficient frontier in the case of derivative trading surpasses that in scenarios where derivative trading is absent.

Keywords: reinsurance; derivative-based investment; mean-variance preference; stochastic volatility (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-7390/12/13/2047/pdf (application/pdf)
https://www.mdpi.com/2227-7390/12/13/2047/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:12:y:2024:i:13:p:2047-:d:1426339

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().