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Minimizing the probability of ruin: Two riskless assets with transaction costs and proportional reinsurance

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  • Liang, Xiaoqing
  • Young, Virginia R.

Abstract

We compute the optimal investment and reinsurance strategy for an insurance company that wishes to minimize its probability of ruin, when the risk process follows Brownian motion with drift and when the insurer can buy proportional reinsurance. The financial market in which the insurer invests consists of two riskless assets. One riskless asset is a money market, and the insurer pays claims from the money market account. The other riskless asset is a bond that earns a higher interest rate than the money market, but buying and selling bonds are subject to proportional transaction costs.

Suggested Citation

  • Liang, Xiaoqing & Young, Virginia R., 2018. "Minimizing the probability of ruin: Two riskless assets with transaction costs and proportional reinsurance," Statistics & Probability Letters, Elsevier, vol. 140(C), pages 167-175.
    • Handle: RePEc:eee:stapro:v:140:y:2018:i:c:p:167-175
    DOI: 10.1016/j.spl.2018.05.005
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    Cited by:

    1. Jiaqi Zhu & Shenghong Li, 2020. "Time-Consistent Investment and Reinsurance Strategies for Mean-Variance Insurers under Stochastic Interest Rate and Stochastic Volatility," Mathematics, MDPI, vol. 8(12), pages 1-22, December.
    2. Chen, Zhiping & Yang, Peng, 2020. "Robust optimal reinsurance–investment strategy with price jumps and correlated claims," Insurance: Mathematics and Economics, Elsevier, vol. 92(C), pages 27-46.
    3. Xiaoqing Liang & Virginia R. Young, 2020. "Minimizing the Probability of Lifetime Exponential Parisian Ruin," Journal of Optimization Theory and Applications, Springer, vol. 184(3), pages 1036-1064, March.

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