Incorporating Foreign Equities in the Optimal Asset Allocation of an Insurer with the Consideration for Background Risks: Models and Numerical Illustrations
We analyzes the optimal asset allocation problem for life insurers that are required to cope with significant background risks originating from life insurance businesses among a set of stochastic investment opportunities including foreign equities. The insurer is assumed to maximize the expected discounted utility of its surplus over a time horizon, and the optimalization problem is formulated in a stochastic control framework. Our derivations show that the optimal portfolio can be characterized by three components: a risk-minimizing component, a risk aversion index coupled with the portfolios performance index, and the component reflecting the diffusions of state variables. Since the explicit solutions cannot be derived due to the complexity of the model, we employ Markov chain approximation methods to obtain the optimal control solutions numerically. The model and numerical methods are then applied to a hypothetical insurer in a simplified setting as an illustrative example.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2005)
Issue (Month): 1 (June)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/apjri|
When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:1:y:2005:i:1:n:2. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.