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Optimal proportional reinsurance and investment with regime-switching for mean–variance insurers

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  • Chen, Ping
  • Yam, S.C.P.
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    Abstract

    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167668713001583
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    Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

    Volume (Year): 53 (2013)
    Issue (Month): 3 ()
    Pages: 871-883

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    Handle: RePEc:eee:insuma:v:53:y:2013:i:3:p:871-883
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505554

    Keywords: Proportional reinsurance; Optimal investment–reinsurance; Geometric Brownian motion; Mean–variance; Efficient frontier;

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    Cited by:

    1. Meng, Hui & Li, Shuanming & Jin, Zhuo, 2015. "A reinsurance game between two insurance companies with nonlinear risk processes," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 91-97.
    2. Shen, Yang & Zeng, Yan, 2015. "Optimal investment–reinsurance strategy for mean–variance insurers with square-root factor process," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 118-137.
    3. Pun, Chi Seng & Wong, Hoi Ying, 2015. "Robust investment–reinsurance optimization with multiscale stochastic volatility," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 245-256.

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