Optimal Reinsurance-Investment Strategy Under Risks of Interest Rate, Exchange Rate and Inflation

Chang Guo (), Xiaoyang Zhuo (), Corina Constantinescu () and Olivier Menoukeu Pamen ()
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Chang Guo: Nankai University
Xiaoyang Zhuo: Nankai University
Corina Constantinescu: University of Liverpool
Olivier Menoukeu Pamen: University of Liverpool

Methodology and Computing in Applied Probability, 2018, vol. 20, issue 4, 1477-1502

Abstract: Abstract In this paper, we pursue the optimal reinsurance-investment strategy of an insurer who can invest in both domestic and foreign markets. We assume that both the domestic and the foreign nominal interest rates are described by extended Cox-Ingersoll-Ross (CIR) models. In order to hedge the risk associated to investments, rolling bonds, treasury inflation protected securities and futures are purchased by the insurer. We use the dynamic programming principles to explicitly derive both the value function and the optimal reinsurance-investment strategy. As a conclusion, we analyze the impact of the model parameters on both the optimal strategy and the optimal utility.

Keywords: Optimal reinsurance-investment strategy; Foreign exchange market; Extended CIR; Stochastic inflation; Dynamic programming principle; 49L20; 91G80 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11009-018-9630-7

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