Optimal proportional reinsurance to minimize the probability of drawdown under thinning-dependence structure

Xia Han, Zhibin Liang and Kam Chuen Yuen

Scandinavian Actuarial Journal, 2018, vol. 2018, issue 10, 863-889

Abstract: In this paper, we consider the optimal proportional reinsurance problem in a risk model with the thinning-dependence structure, and the criterion is to minimize the probability that the value of the surplus process drops below some fixed proportion of its maximum value to date which is known as the probability of drawdown. The thinning dependence assumes that stochastic sources related to claim occurrence are classified into different groups, and that each group may cause a claim in each insurance class with a certain probability. By the technique of stochastic control theory and the corresponding Hamilton–Jacobi–Bellman equation, the optimal reinsurance strategy and the corresponding minimum probability of drawdown are derived not only for the expected value principle but also for the variance premium principle. Finally, some numerical examples are presented to show the impact of model parameters on the optimal results.

Date: 2018
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DOI: 10.1080/03461238.2018.1469098

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