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Optimal Reinsurance-Investment Strategy Under Risks of Interest Rate, Exchange Rate and Inflation

Author

Listed:
  • Chang Guo

    (Nankai University)

  • Xiaoyang Zhuo

    (Nankai University)

  • Corina Constantinescu

    (University of Liverpool)

  • Olivier Menoukeu Pamen

    (University of Liverpool
    African Institute for Mathematical Sciences
    University of Ghana)

Abstract

In this paper, we pursue the optimal reinsurance-investment strategy of an insurer who can invest in both domestic and foreign markets. We assume that both the domestic and the foreign nominal interest rates are described by extended Cox-Ingersoll-Ross (CIR) models. In order to hedge the risk associated to investments, rolling bonds, treasury inflation protected securities and futures are purchased by the insurer. We use the dynamic programming principles to explicitly derive both the value function and the optimal reinsurance-investment strategy. As a conclusion, we analyze the impact of the model parameters on both the optimal strategy and the optimal utility.

Suggested Citation

  • Chang Guo & Xiaoyang Zhuo & Corina Constantinescu & Olivier Menoukeu Pamen, 2018. "Optimal Reinsurance-Investment Strategy Under Risks of Interest Rate, Exchange Rate and Inflation," Methodology and Computing in Applied Probability, Springer, vol. 20(4), pages 1477-1502, December.
    • Handle: RePEc:spr:metcap:v:20:y:2018:i:4:d:10.1007_s11009-018-9630-7
    DOI: 10.1007/s11009-018-9630-7
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    References listed on IDEAS

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    2. Wei Wang & Qianyan Li & Quan Li & Song Xu, 2023. "Robust Optimal Investment Strategies with Exchange Rate Risk and Default Risk," Mathematics, MDPI, vol. 11(6), pages 1-17, March.

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