Dynamic mean-variance and optimal reinsurance problems under the no-bankruptcy constraint for an insurer

Junna Bi (), Qingbin Meng () and Yongji Zhang ()

Annals of Operations Research, 2014, vol. 212, issue 1, 43-59

Abstract: In this paper, we consider the optimal investment and optimal reinsurance problems for an insurer under the criterion of mean-variance with bankruptcy prohibition, i.e., the wealth process of the insurer is not allowed to be below zero at any time. The risk process is a diffusion model and the insurer can invest in a risk-free asset and multiple risky assets. In view of the standard martingale approach in tackling continuous-time portfolio choice models, we consider two subproblems. After solving the two subproblems respectively, we can obtain the solution to the mean-variance optimal problem. We also consider the optimal problem when bankruptcy is allowed. In this situation, we obtain the efficient strategy and efficient frontier using the stochastic linear-quadratic control theory. Then we compare the results in the two cases and give a numerical example to illustrate our results. Copyright Springer Science+Business Media New York 2014

Keywords: Mean-variance criterion; Optimal investment; Optimal reinsurance; Efficient frontier; Efficient strategy; No-bankruptcy constraint (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s10479-013-1338-z

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