Optimal proportional reinsurance and investment with regime-switching for mean–variance insurers
Following the framework of Promislow and Young (2005), this paper considers an optimal investment–reinsurance problem of an insurer facing a claim process modeled by a Brownian motion with drift under the Markowitz mean–variance criterion. The market modes are divided into a finite number of regimes. All the key parameters change according to the value of different market modes. The insurer chooses to purchase proportional reinsurance to reduce the underlying risk. In addition to reinsurance, we suppose that the insurer is allowed to invest its surplus in a financial market consisting of a risk-free asset (bond or bank account) and a risky asset whose price process is modeled by a geometric Brownian motion. We investigate the feasibility of the problem, obtain an analytic expression for the optimal strategy, delineate the efficient frontier and demonstrate our results with numerical examples.
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): 53 (2013)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/505554|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, March.
- Duan Li & Wan-Lung Ng, 2000. "Optimal Dynamic Portfolio Selection: Multiperiod Mean-Variance Formulation," Mathematical Finance, Wiley Blackwell, vol. 10(3), pages 387-406.
- Cao, Yusong & Wan, Nianqing, 2009. "Optimal proportional reinsurance and investment based on Hamilton-Jacobi-Bellman equation," Insurance: Mathematics and Economics, Elsevier, vol. 45(2), pages 157-162, October.
- Liang, Zhibin & Yuen, Kam Chuen & Guo, Junyi, 2011. "Optimal proportional reinsurance and investment in a stock market with Ornstein-Uhlenbeck process," Insurance: Mathematics and Economics, Elsevier, vol. 49(2), pages 207-215, September.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Guidolin, Massimo & Timmermann, Allan, 2007.
"Asset allocation under multivariate regime switching,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 31(11), pages 3503-3544, November.
- Massimo Guidolin & Allan Timmerman, 2006. "Asset allocation under multivariate regime switching," Working Papers 2005-002, Federal Reserve Bank of St. Louis.
- Robert Elliott & Tak Kuen Siu, 2009. "On Markov-modulated Exponential-affine Bond Price Formulae," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(1), pages 1-15.
- Boyle, Phelim & Draviam, Thangaraj, 2007. "Pricing exotic options under regime switching," Insurance: Mathematics and Economics, Elsevier, vol. 40(2), pages 267-282, March.
- Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
- Zeng, Yan & Li, Zhongfei, 2011. "Optimal time-consistent investment and reinsurance policies for mean-variance insurers," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 145-154, July.
- Yuping Liu & Jin Ma, 2009. "Optimal reinsurance/investment problems for general insurance models," Papers 0908.4538, arXiv.org.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
- Zhang, Xin & Siu, Tak Kuen, 2009. "Optimal investment and reinsurance of an insurer with model uncertainty," Insurance: Mathematics and Economics, Elsevier, vol. 45(1), pages 81-88, August.
- Chen, Ping & Yang, Hailiang & Yin, George, 2008. "Markowitz's mean-variance asset-liability management with regime switching: A continuous-time model," Insurance: Mathematics and Economics, Elsevier, vol. 43(3), pages 456-465, December.
- Chen, Shumin & Li, Zhongfei & Li, Kemian, 2010. "Optimal investment-reinsurance policy for an insurance company with VaR constraint," Insurance: Mathematics and Economics, Elsevier, vol. 47(2), pages 144-153, October.
- Paul Storer & Marc A. Van Audenrode, 1995. "Unemployment Insurance Take-Up Rates in Canada: Facts, Determinants, and Implications," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 822-35, November.
When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:53:y:2013:i:3:p:871-883. 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: (Shamier, Wendy)
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.