Optimal investment and reinsurance under exponential forward preferences

Katia Colaneri, Alessandra Cretarola and Benedetta Salterini

Papers from arXiv.org

Abstract: We study the optimal investment and proportional reinsurance problem of an insurance company, whose investment preferences are described via a forward dynamic utility of exponential type in a stochastic factor model allowing for a possible dependence between the financial and insurance markets. Specifically, we assume that the asset price process dynamics and the claim arrival intensity are both affected by a common stochastic process and we account for a possible environmental contagion effect through the non-zero correlation parameter between the underlying Brownian motions driving the asset price process and the stochastic factor dynamics. By stochastic control techniques, we construct a forward dynamic exponential utility, and we characterize the optimal investment and reinsurance strategy. Moreover, we investigate in detail the zero-volatility case and provide a comparison analysis with classical results in an analogous setting under backward utility preferences. We also discuss an extension of the conditional certainty equivalent. Finally, we perform a numerical analysis to highlight some features of the optimal strategy.

Date: 2022-10
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (1)

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