• Previous Article
    Upper Hölder estimates of solutions to parametric primal and dual vector quasi-equilibria
  • JIMO Home
  • This Issue
  • Next Article
    Integrated inventory model with stochastic lead time and controllable variability for milk runs
July  2012, 8(3): 673-690. doi: 10.3934/jimo.2012.8.673

Optimal reinsurance-investment strategies for insurers under mean-CaR criteria

1. 

Lingnan (University) College, Sun Yat-sen University, Guangzhou 510275, China

2. 

Lingnan (University) College/Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou 510275, China

Received  June 2011 Revised  February 2012 Published  June 2012

This paper considers an optimal reinsurance-investment problem for an insurer, who aims to minimize the risk measured by Capital-at-Risk (CaR) with the constraint that the expected terminal wealth is not less than a predefined level. The surplus of the insurer is described by a Brownian motion with drift. The insurer can control her/his risk by purchasing proportional reinsurance, acquiring new business, and investing her/his surplus in a financial market consisting of one risk-free asset and multiple risky assets. Three mean-CaR models are constructed. By transforming these models into bilevel optimization problems, we derive the explicit expressions of the optimal deterministic rebalance reinsurance-investment strategies and the mean-CaR efficient frontiers. Sensitivity analysis of the results and a numerical example are provided.
Citation: Yan Zeng, Zhongfei Li. Optimal reinsurance-investment strategies for insurers under mean-CaR criteria. Journal of Industrial & Management Optimization, 2012, 8 (3) : 673-690. doi: 10.3934/jimo.2012.8.673
References:
[1]

S. Asmussen, B. Højgaard and M. Taksar, Optimal risk control and dividend distribution policies. Example of excess-of loss reinsurance for an insurance corporation, Finance and Stochastics, 4 (2000), 299-324.  Google Scholar

[2]

P. Azcue and N. Muler, Optimal investment strategy to minimize the ruin probability of an insurance company under borrowing constraints, Insurance: Mathematics and Economics, 44 (2009), 26-34. doi: 10.1016/j.insmatheco.2008.09.006.  Google Scholar

[3]

L. H. Bai and J. Y. Guo, Optimal proportional reinsurance and investment with multiple risky assets and no-shorting constraint, Insurance: Mathematics and Economics, 42 (2008), 968-975. doi: 10.1016/j.insmatheco.2007.11.002.  Google Scholar

[4]

L. H. Bai and H. Y. Zhang, Dynamic mean-variance problem with constrained risk control for the insurers, Mathematical Methods of Operations Research, 68 (2008), 181-205. doi: 10.1007/s00186-007-0195-4.  Google Scholar

[5]

N. Bäuerle, Benchmark and mean-variance problems for insurers, Mathematical Methods of Operations Research, 62 (2005), 159-165.  Google Scholar

[6]

F. Black and A. F. Perold, Theory of constant proportion portfolio insurance, Journal of Economic Dynamics and Control, 16 (1992), 403-426. doi: 10.1016/0165-1889(92)90043-E.  Google Scholar

[7]

S. Browne, Optimal investment policies for a firm with a random risk process: Exponential utility and minimizing probability of ruin, Mathematics of Operations Research, 20 (1995), 937-958. doi: 10.1287/moor.20.4.937.  Google Scholar

[8]

Y. S. Cao and N. Q. Wan, Optimal proportional reinsurance and investment based on Hamilton-Jacobi-Bellman equation, Insurance: Mathematics and Economics, 45 (2009), 157-162. doi: 10.1016/j.insmatheco.2009.05.006.  Google Scholar

[9]

Ł. Delong and R. Gerrard, Mean-variance portfolio selection for a non-life insurance company, Mathematical Methods of Operations Research, 66 (2007), 339-367. doi: 10.1007/s00186-007-0152-2.  Google Scholar

[10]

S. Emmer, C. Klüppelberg and R. Korn, Optimal portfolio with bound downside risks, Working paper, (2000). Google Scholar

[11]

S. Emmer, C. Klüppelberg and R. Korn, Optimal portfolio with bounded captial at risk, Mathematical Finance, 11 (2001), 365-384. doi: 10.1111/1467-9965.00121.  Google Scholar

[12]

P. Gänssler and W. Stute, "Wahrscheinlichkeitstheorie," Springer-Verlag, Berlin-New York, 1977.  Google Scholar

[13]

J. Grandlle, "Aspects of Risk Theory," Springer Series in Statistics: Probability and its Applications, Springer-Verlag, New York, 1991.  Google Scholar

[14]

C. Hipp and M. Plum, Optimal investment for insurers, Insurance: Mathematics and Economics, 27 (2000), 215-228. doi: 10.1016/S0167-6687(00)00049-4.  Google Scholar

[15]

D. Iglehart, Diffusion approximations in collective risk theory, Journal of Applied Probability, 6 (1969), 285-292.  Google Scholar

[16]

C. Irgens and J. Paulsen, Optimal control of risk exposure, reinsurance and investment for insurance portfolios, Insurance: Mathematics and Economics, 35 (2004), 21-51. doi: 10.1016/j.insmatheco.2004.04.004.  Google Scholar

[17]

R. Korn, "Optimal Portfolios," World Scientific, Singapore, 1997. Google Scholar

[18]

Z.-F. Li, K. W. Ng and X.-T. Deng, Continuous-time optimal portfolio selection using mean-CaR models, Nonlinear Dynamics and Systems Theory, 7 (2007), 35-49.  Google Scholar

[19]

Z.-F. Li, Y. Zeng and Y. L. Lai, Optimal time-consistent investment and reinsurance strategies for insurers under Heston's SV model, Insurance: Mathematics and Economics, 2011. doi: 10.1016/j.insmatheco.2011.09.002.  Google Scholar

[20]

Z.-B. Liang, Optimal proportional reinsurance for controlled risk process which is perturbed by diffusion, Acta Mathematicae Applicatae Sinica, English Series, 23 (2007), 477-488.  Google Scholar

[21]

Z.-B. Liang and J.-Y. Guo, Optimal proportional reinsurance and ruin probability, Stochastic Models, 23 (2007), 333-350. doi: 10.1080/15326340701300894.  Google Scholar

[22]

Z.-B. Liang and J.-Y. Guo, Upper bound for ruin probabilities under optimal investment and proportional reinsurance, Applied Stochastic Models in Business and Industry, 24 (2008), 109-128. doi: 10.1002/asmb.694.  Google Scholar

[23]

C. S. Liu and H. L. Yang, Optimal investment for an insurer to minimize its probability of ruin, North American Actuarial Journal, 8 (2004), 11-31.  Google Scholar

[24]

S.-Z. Luo, Ruin minimization for insurers with borrowing constraints, North American Actuarial Journal, 12 (2009), 143-174.  Google Scholar

[25]

S.-Z. Luo, M. Taksar and A. Tsoi, On reinsurance and investment for large insurance portfolios, Insurance: Mathematics and Economics, 42 (2008), 434-444. doi: 10.1016/j.insmatheco.2007.04.002.  Google Scholar

[26]

R. C. Merton, Lifetime portfolio selection under uncertainty: The continuous-time model, Review of Economics and Statistics, 51 (1969), 247-256. doi: 10.2307/1926560.  Google Scholar

[27]

R. C. Merton, Optimum consumption and portfolio rules in a continuous-time model, Journal of Economic Theory, 3 (1971), 373-413.  Google Scholar

[28]

A. F. Perold and W. F. Sharpe, Dynamic strategies for asset allocation, Financial Analyst Journal, 44 (1988), 16-27. doi: 10.2469/faj.v44.n1.16.  Google Scholar

[29]

S. D. Promislow and V. R. Young, Minimizing the probability of ruin when claims follow Brownian motion with drift, North American Actuarial Journal, 9 (2005), 109-128.  Google Scholar

[30]

H. Schmidli, Optimal proportional reinsurance policies in a dynamic setting, Scandinavian Actuarial Journal, 1 (2001), 55-68.  Google Scholar

[31]

H. Schmidli, On minimizing the ruin probability by investment and reinsurance, The Annals of Applied Probability, 12 (2002), 890-907.  Google Scholar

[32]

M. Taksar and C. Markussen, Optimal dynamic reinsurance policies for large insurance portfolios, Finance and Stochastics, 7 (2003), 97-121.  Google Scholar

[33]

Z. W. Wang, J. M. Xia and L. H. Zhang, Optimal investment for an insurer: The martingale approach, Insurance: Mathematics and Economics, 40 (2007), 322-334. doi: 10.1016/j.insmatheco.2006.05.003.  Google Scholar

[34]

L. Xu, R. M. Wang and D. J. Yao, On maximizing the expected terminal utility by investment and reinsurance, Journal of Industrial and Management Optimization, 4 (2008), 801-815.  Google Scholar

[35]

H. L. Yang and L. H. Zhang, Optimal investment for insurer with jump-diffusion risk process, Insurance: Mathematics and Economics, 37 (2005), 615-634. doi: 10.1016/j.insmatheco.2005.06.009.  Google Scholar

[36]

Y. Zeng and Z. F. Li, Optimal time-consistent investment and reinsurance policies for mean-variance insurers, Insurance: Mathematics and Economics, 49 (2011), 145-154. doi: 10.1016/j.insmatheco.2011.01.001.  Google Scholar

[37]

Y. Zeng, Z. F. Li and J. J. Liu, Optimal strategies of benchmark and mean-variance portfolio selection problems for insurers, Journal of Industrial and Management Optimization, 6 (2010), 483-496.  Google Scholar

show all references

References:
[1]

S. Asmussen, B. Højgaard and M. Taksar, Optimal risk control and dividend distribution policies. Example of excess-of loss reinsurance for an insurance corporation, Finance and Stochastics, 4 (2000), 299-324.  Google Scholar

[2]

P. Azcue and N. Muler, Optimal investment strategy to minimize the ruin probability of an insurance company under borrowing constraints, Insurance: Mathematics and Economics, 44 (2009), 26-34. doi: 10.1016/j.insmatheco.2008.09.006.  Google Scholar

[3]

L. H. Bai and J. Y. Guo, Optimal proportional reinsurance and investment with multiple risky assets and no-shorting constraint, Insurance: Mathematics and Economics, 42 (2008), 968-975. doi: 10.1016/j.insmatheco.2007.11.002.  Google Scholar

[4]

L. H. Bai and H. Y. Zhang, Dynamic mean-variance problem with constrained risk control for the insurers, Mathematical Methods of Operations Research, 68 (2008), 181-205. doi: 10.1007/s00186-007-0195-4.  Google Scholar

[5]

N. Bäuerle, Benchmark and mean-variance problems for insurers, Mathematical Methods of Operations Research, 62 (2005), 159-165.  Google Scholar

[6]

F. Black and A. F. Perold, Theory of constant proportion portfolio insurance, Journal of Economic Dynamics and Control, 16 (1992), 403-426. doi: 10.1016/0165-1889(92)90043-E.  Google Scholar

[7]

S. Browne, Optimal investment policies for a firm with a random risk process: Exponential utility and minimizing probability of ruin, Mathematics of Operations Research, 20 (1995), 937-958. doi: 10.1287/moor.20.4.937.  Google Scholar

[8]

Y. S. Cao and N. Q. Wan, Optimal proportional reinsurance and investment based on Hamilton-Jacobi-Bellman equation, Insurance: Mathematics and Economics, 45 (2009), 157-162. doi: 10.1016/j.insmatheco.2009.05.006.  Google Scholar

[9]

Ł. Delong and R. Gerrard, Mean-variance portfolio selection for a non-life insurance company, Mathematical Methods of Operations Research, 66 (2007), 339-367. doi: 10.1007/s00186-007-0152-2.  Google Scholar

[10]

S. Emmer, C. Klüppelberg and R. Korn, Optimal portfolio with bound downside risks, Working paper, (2000). Google Scholar

[11]

S. Emmer, C. Klüppelberg and R. Korn, Optimal portfolio with bounded captial at risk, Mathematical Finance, 11 (2001), 365-384. doi: 10.1111/1467-9965.00121.  Google Scholar

[12]

P. Gänssler and W. Stute, "Wahrscheinlichkeitstheorie," Springer-Verlag, Berlin-New York, 1977.  Google Scholar

[13]

J. Grandlle, "Aspects of Risk Theory," Springer Series in Statistics: Probability and its Applications, Springer-Verlag, New York, 1991.  Google Scholar

[14]

C. Hipp and M. Plum, Optimal investment for insurers, Insurance: Mathematics and Economics, 27 (2000), 215-228. doi: 10.1016/S0167-6687(00)00049-4.  Google Scholar

[15]

D. Iglehart, Diffusion approximations in collective risk theory, Journal of Applied Probability, 6 (1969), 285-292.  Google Scholar

[16]

C. Irgens and J. Paulsen, Optimal control of risk exposure, reinsurance and investment for insurance portfolios, Insurance: Mathematics and Economics, 35 (2004), 21-51. doi: 10.1016/j.insmatheco.2004.04.004.  Google Scholar

[17]

R. Korn, "Optimal Portfolios," World Scientific, Singapore, 1997. Google Scholar

[18]

Z.-F. Li, K. W. Ng and X.-T. Deng, Continuous-time optimal portfolio selection using mean-CaR models, Nonlinear Dynamics and Systems Theory, 7 (2007), 35-49.  Google Scholar

[19]

Z.-F. Li, Y. Zeng and Y. L. Lai, Optimal time-consistent investment and reinsurance strategies for insurers under Heston's SV model, Insurance: Mathematics and Economics, 2011. doi: 10.1016/j.insmatheco.2011.09.002.  Google Scholar

[20]

Z.-B. Liang, Optimal proportional reinsurance for controlled risk process which is perturbed by diffusion, Acta Mathematicae Applicatae Sinica, English Series, 23 (2007), 477-488.  Google Scholar

[21]

Z.-B. Liang and J.-Y. Guo, Optimal proportional reinsurance and ruin probability, Stochastic Models, 23 (2007), 333-350. doi: 10.1080/15326340701300894.  Google Scholar

[22]

Z.-B. Liang and J.-Y. Guo, Upper bound for ruin probabilities under optimal investment and proportional reinsurance, Applied Stochastic Models in Business and Industry, 24 (2008), 109-128. doi: 10.1002/asmb.694.  Google Scholar

[23]

C. S. Liu and H. L. Yang, Optimal investment for an insurer to minimize its probability of ruin, North American Actuarial Journal, 8 (2004), 11-31.  Google Scholar

[24]

S.-Z. Luo, Ruin minimization for insurers with borrowing constraints, North American Actuarial Journal, 12 (2009), 143-174.  Google Scholar

[25]

S.-Z. Luo, M. Taksar and A. Tsoi, On reinsurance and investment for large insurance portfolios, Insurance: Mathematics and Economics, 42 (2008), 434-444. doi: 10.1016/j.insmatheco.2007.04.002.  Google Scholar

[26]

R. C. Merton, Lifetime portfolio selection under uncertainty: The continuous-time model, Review of Economics and Statistics, 51 (1969), 247-256. doi: 10.2307/1926560.  Google Scholar

[27]

R. C. Merton, Optimum consumption and portfolio rules in a continuous-time model, Journal of Economic Theory, 3 (1971), 373-413.  Google Scholar

[28]

A. F. Perold and W. F. Sharpe, Dynamic strategies for asset allocation, Financial Analyst Journal, 44 (1988), 16-27. doi: 10.2469/faj.v44.n1.16.  Google Scholar

[29]

S. D. Promislow and V. R. Young, Minimizing the probability of ruin when claims follow Brownian motion with drift, North American Actuarial Journal, 9 (2005), 109-128.  Google Scholar

[30]

H. Schmidli, Optimal proportional reinsurance policies in a dynamic setting, Scandinavian Actuarial Journal, 1 (2001), 55-68.  Google Scholar

[31]

H. Schmidli, On minimizing the ruin probability by investment and reinsurance, The Annals of Applied Probability, 12 (2002), 890-907.  Google Scholar

[32]

M. Taksar and C. Markussen, Optimal dynamic reinsurance policies for large insurance portfolios, Finance and Stochastics, 7 (2003), 97-121.  Google Scholar

[33]

Z. W. Wang, J. M. Xia and L. H. Zhang, Optimal investment for an insurer: The martingale approach, Insurance: Mathematics and Economics, 40 (2007), 322-334. doi: 10.1016/j.insmatheco.2006.05.003.  Google Scholar

[34]

L. Xu, R. M. Wang and D. J. Yao, On maximizing the expected terminal utility by investment and reinsurance, Journal of Industrial and Management Optimization, 4 (2008), 801-815.  Google Scholar

[35]

H. L. Yang and L. H. Zhang, Optimal investment for insurer with jump-diffusion risk process, Insurance: Mathematics and Economics, 37 (2005), 615-634. doi: 10.1016/j.insmatheco.2005.06.009.  Google Scholar

[36]

Y. Zeng and Z. F. Li, Optimal time-consistent investment and reinsurance policies for mean-variance insurers, Insurance: Mathematics and Economics, 49 (2011), 145-154. doi: 10.1016/j.insmatheco.2011.01.001.  Google Scholar

[37]

Y. Zeng, Z. F. Li and J. J. Liu, Optimal strategies of benchmark and mean-variance portfolio selection problems for insurers, Journal of Industrial and Management Optimization, 6 (2010), 483-496.  Google Scholar

[1]

Jean-Claude Zambrini. On the geometry of the Hamilton-Jacobi-Bellman equation. Journal of Geometric Mechanics, 2009, 1 (3) : 369-387. doi: 10.3934/jgm.2009.1.369

[2]

Bian-Xia Yang, Shanshan Gu, Guowei Dai. Existence and multiplicity for Hamilton-Jacobi-Bellman equation. Communications on Pure & Applied Analysis, , () : -. doi: 10.3934/cpaa.2021130

[3]

Steven Richardson, Song Wang. The viscosity approximation to the Hamilton-Jacobi-Bellman equation in optimal feedback control: Upper bounds for extended domains. Journal of Industrial & Management Optimization, 2010, 6 (1) : 161-175. doi: 10.3934/jimo.2010.6.161

[4]

Zhen-Zhen Tao, Bing Sun. A feedback design for numerical solution to optimal control problems based on Hamilton-Jacobi-Bellman equation. Electronic Research Archive, , () : -. doi: 10.3934/era.2021046

[5]

Daniele Castorina, Annalisa Cesaroni, Luca Rossi. On a parabolic Hamilton-Jacobi-Bellman equation degenerating at the boundary. Communications on Pure & Applied Analysis, 2016, 15 (4) : 1251-1263. doi: 10.3934/cpaa.2016.15.1251

[6]

Xuhui Wang, Lei Hu. A new method to solve the Hamilton-Jacobi-Bellman equation for a stochastic portfolio optimization model with boundary memory. Journal of Industrial & Management Optimization, 2021  doi: 10.3934/jimo.2021137

[7]

Yin Li, Xuerong Mao, Yazhi Song, Jian Tao. Optimal investment and proportional reinsurance strategy under the mean-reverting Ornstein-Uhlenbeck process and net profit condition. Journal of Industrial & Management Optimization, 2020  doi: 10.3934/jimo.2020143

[8]

Hiroaki Hata, Li-Hsien Sun. Optimal investment and reinsurance of insurers with lognormal stochastic factor model. Mathematical Control & Related Fields, 2021  doi: 10.3934/mcrf.2021033

[9]

Xin Zhang, Jie Xiong, Shuaiqi Zhang. Optimal reinsurance-investment and dividends problem with fixed transaction costs. Journal of Industrial & Management Optimization, 2021, 17 (2) : 981-999. doi: 10.3934/jimo.2020008

[10]

Yan Zhang, Peibiao Zhao. Optimal reinsurance-investment problem with dependent risks based on Legendre transform. Journal of Industrial & Management Optimization, 2020, 16 (3) : 1457-1479. doi: 10.3934/jimo.2019011

[11]

Mohamed Assellaou, Olivier Bokanowski, Hasnaa Zidani. Error estimates for second order Hamilton-Jacobi-Bellman equations. Approximation of probabilistic reachable sets. Discrete & Continuous Dynamical Systems, 2015, 35 (9) : 3933-3964. doi: 10.3934/dcds.2015.35.3933

[12]

Lv Chen, Hailiang Yang. Optimal reinsurance and investment strategy with two piece utility function. Journal of Industrial & Management Optimization, 2017, 13 (2) : 737-755. doi: 10.3934/jimo.2016044

[13]

Xiaoyu Xing, Caixia Geng. Optimal investment-reinsurance strategy in the correlated insurance and financial markets. Journal of Industrial & Management Optimization, 2021  doi: 10.3934/jimo.2021120

[14]

Yong Ma, Shiping Shan, Weidong Xu. Optimal investment and consumption in the market with jump risk and capital gains tax. Journal of Industrial & Management Optimization, 2019, 15 (4) : 1937-1953. doi: 10.3934/jimo.2018130

[15]

Sebastián Ferrer, Martin Lara. Families of canonical transformations by Hamilton-Jacobi-Poincaré equation. Application to rotational and orbital motion. Journal of Geometric Mechanics, 2010, 2 (3) : 223-241. doi: 10.3934/jgm.2010.2.223

[16]

Manuel de León, Juan Carlos Marrero, David Martín de Diego. Linear almost Poisson structures and Hamilton-Jacobi equation. Applications to nonholonomic mechanics. Journal of Geometric Mechanics, 2010, 2 (2) : 159-198. doi: 10.3934/jgm.2010.2.159

[17]

Gongpin Cheng, Rongming Wang, Dingjun Yao. Optimal dividend and capital injection strategy with excess-of-loss reinsurance and transaction costs. Journal of Industrial & Management Optimization, 2018, 14 (1) : 371-395. doi: 10.3934/jimo.2017051

[18]

Ming Yan, Hongtao Yang, Lei Zhang, Shuhua Zhang. Optimal investment-reinsurance policy with regime switching and value-at-risk constraint. Journal of Industrial & Management Optimization, 2020, 16 (5) : 2195-2211. doi: 10.3934/jimo.2019050

[19]

Xin Jiang, Kam Chuen Yuen, Mi Chen. Optimal investment and reinsurance with premium control. Journal of Industrial & Management Optimization, 2020, 16 (6) : 2781-2797. doi: 10.3934/jimo.2019080

[20]

Federica Masiero. Hamilton Jacobi Bellman equations in infinite dimensions with quadratic and superquadratic Hamiltonian. Discrete & Continuous Dynamical Systems, 2012, 32 (1) : 223-263. doi: 10.3934/dcds.2012.32.223

2020 Impact Factor: 1.801

Metrics

  • PDF downloads (107)
  • HTML views (0)
  • Cited by (11)

Other articles
by authors

[Back to Top]