Mean-variance portfolio selection for a non-life insurance company

Łukasz Delong and Russell Gerrard

Mathematical Methods of Operations Research, 2007, vol. 66, issue 2, 339-367

Abstract: We consider a collective insurance risk model with a compound Cox claim process, in which the evolution of a claim intensity is described by a stochastic differential equation driven by a Brownian motion. The insurer operates in a financial market consisting of a risk-free asset with a constant force of interest and a risky asset which price is driven by a Lévy noise. We investigate two optimization problems. The first one is the classical mean-variance portfolio selection. In this case the efficient frontier is derived. The second optimization problem, except the mean-variance terminal objective, includes also a running cost penalizing deviations of the insurer’s wealth from a specified profit-solvency target which is a random process. In order to find optimal strategies we apply techniques from the stochastic control theory. Copyright Springer-Verlag 2007

Keywords: Lévy diffusion financial market; Compound Cox claim process; Hamilton–Jacobi–Bellman equation; Feynman–Kac representation; Efficient frontier (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (21)

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DOI: 10.1007/s00186-007-0152-2

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