CDF formulation for solving an optimal reinsurance problem

Chengguo Weng and Sheng Chao Zhuang

Scandinavian Actuarial Journal, 2017, vol. 2017, issue 5, 395-418

Abstract: An innovative cumulative distribution function (CDF)-based method is proposed for deriving optimal reinsurance contracts to maximize an insurer’s survival probability. The optimal reinsurance model is a non-concave constrained stochastic maximization problem, and the CDF-based method transforms it into a functional concave programming problem of determining an optimal CDF over a corresponding feasible set. Compared to the existing literature, our proposed CDF formulation provides a more transparent derivation of the optimal solutions, and more interestingly, it enables us to study a further complex model with an extra background risk and more sophisticated premium principle.

Date: 2017
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DOI: 10.1080/03461238.2016.1167114

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