Optimal reinsurance and investment problem with default risk and bounded memory

Deng, Chao; Bian, Wenlong; Wu, Baiyi

doi:10.1080/00207179.2019.1573320

Cited by 14 publications

(6 citation statements)

References 25 publications

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“…Obviously, the guarantee institution will also increase the proportion of re-guarantee purchase to transfer the risk. Although few scholars have found the applicability of the above decision-making mechanism in the guarantee industry, it has been fully demonstrated in the insurance or reinsurance industry, which is consistent with the intrinsic mechanism derived from Gan et al (2017) [28], Deng et al (2020) [43], and Zhang et al (2022) [44].Third, the finding regarding the period of guarantee contract is an important addition, which was overlooked in previous studies of Wang et al ( 2016) [3] and Gu (2017) [16]. In terms of realistic interpretations of the findings, on the one hand, the higher the degree of uncertainty, and the greater the risk borne by the guarantee institution.…”

Section: Bresults Discussionsupporting

confidence: 81%

The Optimal Investment and Re-Guarantee Purchase of China’s Financing Guarantee Institutions Considering Risk Preference

Wei

2022

IEEE Access

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Financing guarantee institutions achieve capital preservation and appreciation through investment, and diversify business risks by purchasing re-guarantee. In order to study the optimal investment and re-guarantee purchase strategies of financing guarantee institutions, the geometric Brownian motion modulated by Markov chain modulation is selected to describe the price process of risk assets, the Hamilton-Jacobi-Bellman equation is constructed based on the utility maximization criterion, and the solutions of optimal investment and re-guarantee purchase strategies are discussed under the exponential utility function. Ultimately, the influence of relevant parameter on optimal strategies is studied by computational experimental simulation method. The results showed that the risk-free interest rate, risk aversion coefficient and guarantee period have significant effects on the optimal investment and reguarantee purchase strategies. The market mechanism only affects the trend of the optimal investment strategy, but has no effect on the optimal re-guarantee purchase strategy. However, the increase of the reguarantee institution's safety loading and the guarantee recovery rate will significantly reduce the reguarantee purchase ratio.INDEX TERMS Financing guarantee institution, Investment, Re-guarantee purchase, Utility

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Section: Bresults Discussionsupporting

confidence: 81%

The Optimal Investment and Re-Guarantee Purchase of China’s Financing Guarantee Institutions Considering Risk Preference

Wei

2022

IEEE Access

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“…In this situation, decision-makers only consider the benefit of the insurer, this is also the traditional approach to deal with the optimal investment-reinsurance problem. However, compared with the existing literature on the study of optimal investment and reinsurance in the continue-time setting (e.g., Schmidli [1], Zeng and Li [2], Zhu et al [3], and Deng et al [6] and so on), the proposed strategies in Remark 1 also consider the intermediate performance of the insurer.…”

Section: Remarkmentioning

confidence: 99%

“…Obviously, the setting of the reinsurance contract depends on the mutual agreement between the insurer and the reinsurer. However, most of the existing literature mainly focuses on the optimal investment-reinsurance problems only from the perspective of the insurer, while the interest of the reinsurer is generally ignored (e.g., Schmidli [1], Zeng and Li [2], Zhu et al [3], Huang et al [4], Hu and Wang [5], Deng et al [6] and so on). Actually, the optimal reinsurance contract for the insurer may not be optimal or even unacceptable for the reinsurer.…”

Section: Introductionmentioning

confidence: 99%

Time-Consistent Investment-Reinsurance Strategies for the Insurer and the Reinsurer under the Generalized Mean-Variance Criteria

et al. 2019

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Most of the existing literature on optimal investment-reinsurance only studies from the perspective of insurers and also treats the investment-reinsurance decision as a continuous process. However, in practice, the benefits of reinsurers cannot be ignored, nor can decision-makers engage in continuous trading. Under the discrete-time framework, we first propose a multi-period investment-reinsurance optimization problem considering the joint interests of the insurer and the reinsurer, among which their performance is measured by two generalized mean-variance criteria. We derive the time-consistent investment-reinsurance strategies for the proposed model by maximizing the weighted sum of the insurer’s and the reinsurer’s mean-variance objectives. We discuss the time-consistent investment-reinsurance strategies under two special premium principles. Finally, we provide some numerical simulations to show the impact of the intertemporal restrictions on the time-consistent investment-reinsurance strategies. These results indicate that the intertemporal restrictions will urge the insurer and the reinsurer to shrink the position invested in the risky asset; however, for the time-consistent reinsurance strategy, the impact of the intertemporal restrictions depends on who is the leader in the proposed model.

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“…They considered two cases where the extra contribution rates were stochastic and constant respectively. The work considered three different assets namely risk free asset (cash), zero coupon bonds and the risky asset (stock) were considered and using Legendre transformation and dual theory where exponential utility function for two of the cases they obtained the optimal investment strategies for the three investment that showed that the strategies for this respective investments when there was no extra contribution rate was constant but could not be used when it was stochastic which clearly gave the member and the fund manager good insight on how to invest to obtain a maximum profit with minimal risk [5] . Studied the optimal reinsurance contract for the insurer and arrived at the fact that the result may not be optimal and unacceptable for the reinsurer.…”

Section: Introductionmentioning

confidence: 99%

The implications of taxation on the investment strategy of insurance company under constant elasticity of variance model and different utility preferences

IM¹,

SA²,

HN³

2022

Int. J. Stat. Appl. Math.

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This work investigates the impact of taxation on an investment strategy of an insurance company considering three utility functions; exponential, power, and logarithmic utility preferences. The risky asset is assumed to be driven by Constant Elasticity of Variance (CEV) model. The investment problem considered was insurance company that trades two assets; a risky stock with an investment behavior in the presence of a stochastic cash flow or a risk process and the money market account (bond), continuously in the economy. The Hamilton-Jacobi-Bellman (HJB) equation associated with the optimization problem is obtained using the Ito's lemma. Among others, it was found that in the case of power utility preference, the investment strategy, when there was taxation was more than the investment strategy when there was no taxation. Further found was that when exponential utility performance was adopted, the investment strategy when there was taxation was less than the strategy when there was no taxation. The impact of taxation on the investment strategy and choice of utility preference should be considered when making investment decisions.

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Optimal reinsurance and investment problem with default risk and bounded memory

Cited by 14 publications

References 25 publications

The Optimal Investment and Re-Guarantee Purchase of China’s Financing Guarantee Institutions Considering Risk Preference

The Optimal Investment and Re-Guarantee Purchase of China’s Financing Guarantee Institutions Considering Risk Preference

Time-Consistent Investment-Reinsurance Strategies for the Insurer and the Reinsurer under the Generalized Mean-Variance Criteria

The implications of taxation on the investment strategy of insurance company under constant elasticity of variance model and different utility preferences

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