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Optimal risk and dividend control problem with fixed costs and salvage value: Variance premium principle

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  • Yao, Dingjun
  • Yang, Hailiang
  • Wang, Rongming

Abstract

In this paper we study the combined optimal dividend, capital injection and reinsurance problems in a dynamic setting. The reinsurance premium is assumed to be calculated via the variance principle instead of the expected value principle. The proportional and fixed transaction costs and the salvage value at bankruptcy are included in the model. In both cases of unrestricted dividend rate and restricted dividend rate, we obtain the closed-form solutions of the value function and the optimal joint strategies, which depend on the transaction costs and the profitability in future.

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  • Yao, Dingjun & Yang, Hailiang & Wang, Rongming, 2014. "Optimal risk and dividend control problem with fixed costs and salvage value: Variance premium principle," Economic Modelling, Elsevier, vol. 37(C), pages 53-64.
    • Handle: RePEc:eee:ecmode:v:37:y:2014:i:c:p:53-64
    DOI: 10.1016/j.econmod.2013.10.026
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    Cited by:

    1. Liu, Bing & Meng, Hui & Zhou, Ming, 2021. "Optimal investment and reinsurance policies for an insurer with ambiguity aversion," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    2. Zuo Quan Xu, 2021. "Moral-hazard-free insurance: mean-variance premium principle and rank-dependent utility theory," Papers 2108.06940, arXiv.org, revised Aug 2022.
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    4. Chen, Lv & Qian, Linyi & Shen, Yang & Wang, Wei, 2016. "Constrained investment–reinsurance optimization with regime switching under variance premium principle," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 253-267.
    5. Florin Avram & Dan Goreac & Juan Li & Xiaochi Wu, 2021. "Equity Cost Induced Dichotomy for Optimal Dividends with Capital Injections in the Cramér-Lundberg Model," Mathematics, MDPI, vol. 9(9), pages 1-27, April.

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