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Numerical Method for a Risk Model with Two-Sided Jumps and Proportional Investment

Author

Listed:
  • Jiaen Xu

    (School of Mathematics and Statistics, Henan University of Science and Technology, Luoyang 471023, China
    These authors contributed equally to this work.)

  • Chunwei Wang

    (School of Mathematics and Statistics, Henan University of Science and Technology, Luoyang 471023, China
    These authors contributed equally to this work.)

  • Naidan Deng

    (School of Mathematics and Statistics, Henan University of Science and Technology, Luoyang 471023, China)

  • Shujing Wang

    (School of Mathematics and Statistics, Henan University of Science and Technology, Luoyang 471023, China)

Abstract

In this paper, we consider a risk model with two-sided jumps and proportional investment. The upward jumps and downward jumps represent gains and claims, respectively. Suppose the company invests all of its surplus in a certain proportion in two types of investments, one is risk-free (such as bank accounts) and the other is risky (such as stocks). Our aim is to find the optimal admissible strategy (including the optimal dividend rate and the optimal ratio of investment in risky assets), to maximize the dividend value function, and discuss the effects of a number of parameters on dividend payments. Firstly, the HJB equation of the dividend value function is obtained by the stochastic analysis theory and the dynamic programming method, and the optimal admissible strategy is obtained. Since the integro-differential equation satisfied by the dividend value function is difficult to solve, we turn to the sinc numerical method to approximate solve it. Then, the error between the exact solution (ES) and the sinc approximate solution (SA) is analyzed. Finally, the relative error of a special numerical solution and an ES is given, and some examples of sensitivity analysis are discussed. This study provides a theoretical basis for insurance companies to prevent risks better.

Suggested Citation

  • Jiaen Xu & Chunwei Wang & Naidan Deng & Shujing Wang, 2023. "Numerical Method for a Risk Model with Two-Sided Jumps and Proportional Investment," Mathematics, MDPI, vol. 11(7), pages 1-22, March.
    • Handle: RePEc:gam:jmathe:v:11:y:2023:i:7:p:1584-:d:1106913
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    References listed on IDEAS

    as
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