Optimal investment for participating insurance contracts under VaR-Regulation
Thai Nguyen and
Papers from arXiv.org
This paper studies a VaR-regulated optimal portfolio problem of the equity holder of a participating life insurance contract. In a complete market setting the optimal solution is given explicitly for contracts with mortality risk using a martingale approach for constrained non-concave optimization problems. We show that regulatory VaR constraints for participating insurance contracts lead to more prudent investment than in the case of no regulation. This result is contrary to the situation where the insurer maximizes the utility of the total wealth of the company (without distinguishing between contributions of equity holders and policyholders), in which case a VaR constraint may induce the insurer to take excessive risks leading to higher losses than in the case of no regulation, see Basak and Shapiro (2001). Furthermore, importantly for regulators we observe that for participating insurance contracts both relatively small or relatively large policyholder contributions yield rather risky and volatile strategies. Finally, we also discuss the regulatory effect of a portfolio insurance (PI), and analyze different choices for the parameters of the participating contract numerically .
New Economics Papers: this item is included in nep-cta, nep-ias, nep-knm, nep-rmg and nep-upt
Date: 2018-05, Revised 2018-05
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://arxiv.org/pdf/1805.09068 Latest version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1805.09068
Access Statistics for this paper
More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().