Minimizing capital injections by investment and reinsurance for a piecewise deterministic reserve process model

Michele Antonello, Luca Cipani and Wolfgang J. Runggaldier

Scandinavian Actuarial Journal, 2018, vol. 2018, issue 10, 907-932

Abstract: We consider the possibility for an insurance company to rely on capital injections to bring the reserve back to a given level if it has fallen below it and study the problem of dynamically choosing the reinsurance level and the investment in the financial market in order to minimize the expected discounted total amount of capital injection. The reserve process is described by a piecewise deterministic process, where the random discontinuities are triggered by the arrival of a claim or by a change in the prices of the risky assets in which the company invests. The capital injections, combined with the specific model, make the problem non-linear and difficult to solve via an HJB approach. The emphasis here is on making the actual computation of a solution possible by value iteration combined with an approximation based on discretization. This leads to a nearly optimal solution with an approximation that can be made arbitrarily precise. Numerical results show the feasibility of the proposed approach.

Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/03461238.2018.1471001 (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:2018:y:2018:i:10:p:907-932

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

DOI: 10.1080/03461238.2018.1471001

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 ().