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Optimal Investment and Bounded Ruin Probability: Constant Portfolio Strategies and Mean-variance Analysis1

Author

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  • Korn, Ralf
  • Wiese, Anke

Abstract

We study the continuous-time portfolio optimization problem of an insurer. The wealth of the insurer is given by a classical risk process plus gains from trading in a risky asset, modelled by a geometric Brownian motion. The insurer is not only interested in maximizing the expected utility of wealth but is also concerned about the ruin probability. We thus investigate the problem of optimizing the expected utility for a bounded ruin probability. The corresponding optimal strategy in various special classes of possible investment strategies will be calculated. For means of comparison we also calculate the related mean-variance optimal strategies.

Suggested Citation

  • Korn, Ralf & Wiese, Anke, 2008. "Optimal Investment and Bounded Ruin Probability: Constant Portfolio Strategies and Mean-variance Analysis1," ASTIN Bulletin, Cambridge University Press, vol. 38(2), pages 423-440, November.
    • Handle: RePEc:cup:astinb:v:38:y:2008:i:02:p:423-440_01
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    Cited by:

    1. Benjamin Avanzi & Hayden Lau & Mogens Steffensen, 2022. "Optimal reinsurance design under solvency constraints," Papers 2203.16108, arXiv.org, revised Jun 2023.
    2. Sung Soo Kim & Steve Drekic, 2016. "Ruin Analysis of a Discrete-Time Dependent Sparre Andersen Model with External Financial Activities and Randomized Dividends," Risks, MDPI, vol. 4(1), pages 1-15, February.
    3. Lim, Andrew E.B. & Wong, Bernard, 2010. "A benchmarking approach to optimal asset allocation for insurers and pension funds," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 317-327, April.

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