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Stochastic Differential Games Between Two Insurers With Generalized Mean-Variance Premium Principle

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  • Chen, Shumin
  • Yang, Hailiang
  • Zeng, Yan

Abstract

We study a stochastic differential game problem between two insurers, who invest in a financial market and adopt reinsurance to manage their claim risks. Supposing that their reinsurance premium rates are calculated according to the generalized mean-variance principle, we consider the competition between the two insurers as a non-zero sum stochastic differential game. Using dynamic programming technique, we derive a system of coupled Hamilton–Jacobi–Bellman equations and show the existence of equilibrium strategies. For an exponential utility maximizing game and a probability maximizing game, we obtain semi-explicit solutions for the equilibrium strategies and the equilibrium value functions, respectively. Finally, we provide some detailed comparative-static analyses on the equilibrium strategies and illustrate some economic insights.

Suggested Citation

  • Chen, Shumin & Yang, Hailiang & Zeng, Yan, 2018. "Stochastic Differential Games Between Two Insurers With Generalized Mean-Variance Premium Principle," ASTIN Bulletin, Cambridge University Press, vol. 48(1), pages 413-434, January.
    • Handle: RePEc:cup:astinb:v:48:y:2018:i:01:p:413-434_00
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    Cited by:

    1. Jiequn Han & Ruimeng Hu & Jihao Long, 2020. "Convergence of Deep Fictitious Play for Stochastic Differential Games," Papers 2008.05519, arXiv.org, revised Mar 2021.
    2. Yanfei Bai & Zhongbao Zhou & Helu Xiao & Rui Gao & Feimin Zhong, 2019. "A hybrid stochastic differential reinsurance and investment game with bounded memory," Papers 1910.09834, arXiv.org.
    3. Zhu, Huainian & Cao, Ming & Zhang, Chengke, 2019. "Time-consistent investment and reinsurance strategies for mean-variance insurers with relative performance concerns under the Heston model," Finance Research Letters, Elsevier, vol. 30(C), pages 280-291.
    4. Chen, Lv & Shen, Yang, 2019. "Stochastic Stackelberg differential reinsurance games under time-inconsistent mean–variance framework," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 120-137.
    5. Wang, Ning & Zhang, Nan & Jin, Zhuo & Qian, Linyi, 2021. "Stochastic differential investment and reinsurance games with nonlinear risk processes and VaR constraints," Insurance: Mathematics and Economics, Elsevier, vol. 96(C), pages 168-184.
    6. Liang, Xiaoqing & Liang, Zhibin & Young, Virginia R., 2020. "Optimal reinsurance under the mean–variance premium principle to minimize the probability of ruin," Insurance: Mathematics and Economics, Elsevier, vol. 92(C), pages 128-146.
    7. Bai, Yanfei & Zhou, Zhongbao & Xiao, Helu & Gao, Rui & Zhong, Feimin, 2022. "A hybrid stochastic differential reinsurance and investment game with bounded memory," European Journal of Operational Research, Elsevier, vol. 296(2), pages 717-737.
    8. Han, Jinhui & Ma, Guiyuan & Yam, Sheung Chi Phillip, 2022. "Relative performance evaluation for dynamic contracts in a large competitive market," European Journal of Operational Research, Elsevier, vol. 302(2), pages 768-780.

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