Optimal asset allocation for participating contracts under the VaR and PI constraint

Yinghui Dong, Sang Wu, Wenxin Lv and Guojing Wang

Scandinavian Actuarial Journal, 2020, vol. 2020, issue 2, 84-109

Abstract: Participating contracts provide a maturity guarantee for the policyholder. However, the terminal payoff to the policyholder should be related to financial risks of participating insurance contracts. We investigate an optimal investment problem under a joint value-at-risk and portfolio insurance constraint faced by the insurer who offers participating contracts. The insurer aims to maximize the expected utility of the terminal payoff to the insurer. We adopt a concavification technique and a Lagrange dual method to solve the problem and derive the representations of the optimal wealth process and trading strategies. We also carry out some numerical analysis to show how the joint value-at-risk and the portfolio insurance constraint impacts the optimal terminal wealth.

Date: 2020
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DOI: 10.1080/03461238.2019.1636859

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