# American Institute of Mathematical Sciences

April  2013, 9(2): 411-429. doi: 10.3934/jimo.2013.9.411

## Risk-minimizing portfolio selection for insurance payment processes under a Markov-modulated model

 1 Research Center of International Finance and Risk Management, East China Normal University, Shanghai, 200241, China 2 Department of Mathematics, Ningbo University, Ningbo, 315211, China 3 School of Finance and Statistics, East China Normal University, Shanghai, 200241

Received  November 2011 Revised  January 2013 Published  February 2013

This paper extends the model in Riesner (2007) to a Markov modulated Lévy process. The parameters of the Lévy process switch over time according to the different states of an economy, which is described by a finite-state continuous time Markov chain. Employing the local risk minimization method, we find an optimal hedging strategy for a general payment process. Finally, we give an example for single unit-linked insurance contracts with guarantee to display the specific locally risk-minimizing hedging strategy.
Citation: Linyi Qian, Wei Wang, Rongming Wang. Risk-minimizing portfolio selection for insurance payment processes under a Markov-modulated model. Journal of Industrial & Management Optimization, 2013, 9 (2) : 411-429. doi: 10.3934/jimo.2013.9.411
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