Optimal Investment and Risk Control for An Insurer in A Jump-diffusion Market with Regime-switching

Weiwei Shen ()
Additional contact information
Weiwei Shen: Tongling University, School of Mathematics and Computer Science

Methodology and Computing in Applied Probability, 2025, vol. 27, issue 4, 1-29

Abstract: Abstract This paper investigates optimal investment and risk control strategies for an insurer operating in a jump-diffusion market with regime-switching. The proposed model incorporates a risk-free asset, a risky asset governed by a Markov-modulated jump-diffusion stochastic differential equation (SDE), and a risk process negatively correlated with the risky asset, approximated by a diffusion process. The insurer manages wealth allocation and adjusts risk exposure via the number of insurance policies issued. Optimal strategies are derived within an expected utility maximization framework for logarithmic and power utility functions. For logarithmic utility, classical optimization under a strengthened budget constraint yields explicit solutions. Under power utility, the regime-switching Hamilton–Jacobi–Bellman (HJB) equation is solved to obtain closed-form strategies. Numerical simulations under a two-state Markov chain illustrate the optimal strategies for both utility functions.

Keywords: Optimal investment; Risk control; Jump-diffusion; Regime-switching; 91B05; 91B30; 93E20 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11009-025-10228-9 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:27:y:2025:i:4:d:10.1007_s11009-025-10228-9

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

DOI: 10.1007/s11009-025-10228-9

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 ().