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Open-loop equilibrium reinsurance-investment strategy under mean–variance criterion with stochastic volatility

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  • Yan, Tingjin
  • Wong, Hoi Ying

Abstract

This paper investigates the open-loop equilibrium reinsurance-investment (RI) strategy under general stochastic volatility (SV) models. We resolve difficulties arising from the unbounded volatility process and the non-negativity constraint on the reinsurance strategy. The resolution enables us to derive the existence and uniqueness result for the time-consistent mean variance RI policy under both situations of constant and state-dependent risk aversions. We apply the general framework to popular SV models including the Heston, the 3/2 and the Hull–White models. Closed-form solutions are obtained for the aforementioned models under constant risk aversion, and the non-leveraged models under state-dependent risk aversion.

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  • Yan, Tingjin & Wong, Hoi Ying, 2020. "Open-loop equilibrium reinsurance-investment strategy under mean–variance criterion with stochastic volatility," Insurance: Mathematics and Economics, Elsevier, vol. 90(C), pages 105-119.
    • Handle: RePEc:eee:insuma:v:90:y:2020:i:c:p:105-119
    DOI: 10.1016/j.insmatheco.2019.11.003
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