Optimal Investment and Reinsurance to Maximize the Probability of Drawup Before Drawdown

Yakun Liu, Jingchao Li, Jieming Zhou () and Yingchun Deng ()
Additional contact information
Yakun Liu: Hunan Normal University
Jingchao Li: Shenzhen University
Jieming Zhou: Hunan Normal University
Yingchun Deng: Hunan University of Information Technology

Methodology and Computing in Applied Probability, 2024, vol. 26, issue 3, 1-34

Abstract: Abstract In this paper, we study the optimal investment and proportional reinsurance problem for an insurer with short-selling and borrowing constraints under the expected value premium principle. The claim process follows a Brownian risk model with a drift. The insurer’s surplus is allowed to invest in one risk-free asset and one risky asset. By using the dynamic programming approach and solving the corresponding boundary-value problems, the optimization objective of maximizing the probability of drawup before drowdown is considered initially. The optimal strategy and the corresponding value function are derived through solving the Hamilton-Jacobi-Bellman (HJB) equation. Moreover, numerical examples are performed to illustrate the effects of model parameters on the optimal strategy. In addition, we verify the optimality of the strategies obtained from the dynamic programming principle by Euler method.

Keywords: Drawdown; Drawup; Euler method; Investment; Reinsurance; Primary 60H30; 91G10; Secondary 93G20 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11009-024-10096-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:metcap:v:26:y:2024:i:3:d:10.1007_s11009-024-10096-9

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/11009

DOI: 10.1007/s11009-024-10096-9

Access Statistics for this article

Methodology and Computing in Applied Probability is currently edited by Joseph Glaz

More articles in Methodology and Computing in Applied Probability from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().