Optimal investment and reinsurance strategies for an insurer with stochastic economic factor

Authors : Weiwei SHEN

Pages : 197-208

Doi:10.15672/hujms.1025441

View : 23 | Download : 8

Publication Date : 2023-02-15

Article Type : Research Paper

Abstract :This work considers optimal investment and reinsurance strategies for an insurer with stochastic economic factor. In our mathematical model, a risk-free asset and a risky asset are assumed to rely on a stochastic economic factor which is described by a diffusion process. We generalize the claim process to a compound Poisson process with the stochastic economic factor. Using expected utility maximization, we characterize the optimal strategy of investment-reinsurance under the power utility function. We use dynamic programming principle to derive the Hamilton–Jacobi–Bellman insert ignore into journalissuearticles values(HJB); equation. Then, by analysing the solution of the HJB equation, the optimal investment-reinsurance strategy is obtained and given in the verification theorem. Finally, sensitivity analysis is given to show the economic behavior of the optimal investment and reinsurance strategies.
Keywords : Stochastic control, investment reinsurance strategy, stochastic economic factor, Lévy processes, HJB equation