Optimal excess-of-loss reinsurance and investment polices under the CEV model

Qicai Li (), Mengdi Gu and Zhibing Liang

Annals of Operations Research, 2014, vol. 223, issue 1, 273-290

Abstract: This paper focuses on risk control problem of the insurance company in enterprise risk management. The insurer manages its financial risk through purchasing excess-of-loss reinsurance, and investing its wealth in the constant elasticity of variance stock market. We model risk process by Brownian motion with drift, and study the optimization problem of maximizing the exponential utility of terminal wealth under the controls of reinsurance and investment. Using stochastic control theory, we obtain explicit expressions for optimal polices and value function. We also show that the optimal excess-of-loss reinsurance is always better than optimal proportional reinsurance. And some numerical examples are given. Copyright Springer Science+Business Media New York 2014

Keywords: Enterprise risk management; Stochastic control; Excess-of-loss reinsurance; CEV model; Exponential utility; 93E20; 91B30 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10479-014-1596-4

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