Time-consistent mean-variance reinsurance-investment strategy for insurers under CEV model

Xiang Lin and Yiping Qian

Scandinavian Actuarial Journal, 2016, vol. 2016, issue 7, 646-671

Abstract: We consider an optimal time-consistent reinsurance-investment strategy selection problem for an insurer whose surplus is governed by a compound Poisson risk model. In our model, the insurer transfers part of the risk due to insurance claims via a proportional reinsurance and invests the surplus in a simplified financial market consisting of a risk-free asset and a risky stock. The dynamics of the risky stock is governed by a constant elasticity of variance model to incorporate conditional heteroscedasticity as well as the feedback effect of an asset’s price on its volatility. The objective of the insurer is to choose an optimal time-consistent reinsurance-investment strategy so as to maximize the expected terminal surplus while minimizing the variance of the terminal surplus. We investigate the problem using the Hamilton-Jacobi-Bellman dynamic programming approach. Closed-form solutions for the optimal reinsurance-investment strategies and the corresponding value functions are obtained in both the compound Poisson risk model and its diffusion approximation. Numerical examples are also provided to illustrate how the optimal reinsurance-investment strategy changes when some model parameters vary.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/03461238.2015.1048710 (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:sactxx:v:2016:y:2016:i:7:p:646-671

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/sact20

DOI: 10.1080/03461238.2015.1048710

Access Statistics for this article

Scandinavian Actuarial Journal is currently edited by Boualem Djehiche

More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().