Optimal reinsurance and investment problem with multiple risky assets and correlation risk for an insurer under the Ornstein-Uhlenbeck model

Ximin Rong, Yiqi Yan and Hui Zhao

Communications in Statistics - Theory and Methods, 2024, vol. 53, issue 8, 2689-2714

Abstract: This paper studies the optimal reinsurance and investment problem with multiple risky assets and correlation risk. The claim process is described by a Brownian motion with drift. The insurer is allowed to invest in a risk-free asset and multiple risky assets and the instantaneous return rate of each risky asset follows the Ornstein-Uhlenbeck (O-U) model. Moreover, the correlation between risk model and the risky assets’ price is taken into account. We first consider the optimal investment problem for the insurer. Subsequently, we assume that the insurer can purchase proportional reinsurance and invest in the financial market. In both cases, the insurer’s objective is to maximize the expected exponential utility of the terminal wealth. By applying stochastic control approach, we derive the optimal reinsurance and investment strategies and the corresponding value functions explicitly. Finally, numerical simulations are presented to illustrate the effects of model parameters on the optimal reinsurance and investment strategies.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/03610926.2022.2148470 (text/html)
Access to full text is restricted to subscribers.

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:taf:lstaxx:v:53:y:2024:i:8:p:2689-2714

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/lsta20

DOI: 10.1080/03610926.2022.2148470

Access Statistics for this article

Communications in Statistics - Theory and Methods is currently edited by Debbie Iscoe

More articles in Communications in Statistics - Theory and Methods from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().