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Optimal Investment in a Dual Risk Model

Author

Listed:
  • Arash Fahim

    (Department of Mathematics, Florida State University, Tallahassee, FL 32306, USA
    These authors contributed equally to this work.)

  • Lingjiong Zhu

    (Department of Mathematics, Florida State University, Tallahassee, FL 32306, USA
    These authors contributed equally to this work.)

Abstract

Dual risk models are popular for modeling a venture capital or high-tech company, for which the running cost is deterministic and the profits arrive stochastically over time. Most of the existing literature on dual risk models concentrates on the optimal dividend strategies. In this paper, we propose to study the optimal investment strategy on research and development for the dual risk models to minimize the ruin probability of the underlying company. We will also study the optimization problem when, in addition, the investment in a risky asset is allowed.

Suggested Citation

  • Arash Fahim & Lingjiong Zhu, 2023. "Optimal Investment in a Dual Risk Model," Risks, MDPI, vol. 11(2), pages 1-29, February.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:2:p:41-:d:1063626
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    References listed on IDEAS

    as
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    2. Wendell H. Fleming & Thaleia Zariphopoulou, 1991. "An Optimal Investment/Consumption Model with Borrowing," Mathematics of Operations Research, INFORMS, vol. 16(4), pages 802-822, November.
    3. Browne, S., 1995. "Optimal Investment Policies for a Firm with a Random Risk Process: Exponential Utility and Minimizing the Probability of Ruin," Papers 95-08, Columbia - Graduate School of Business.
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    6. Arash Fahim & Lingjiong Zhu, 2016. "Asymptotic Analysis for Optimal Dividends in a Dual Risk Model," Papers 1601.03435, arXiv.org, revised Dec 2022.
    7. Ng, Andrew C.Y., 2009. "On a dual model with a dividend threshold," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 315-324, April.
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    12. Cheung, Eric C.K. & Drekic, Steve, 2008. "Dividend Moments in the Dual Risk Model: Exact and Approximate Approaches," ASTIN Bulletin, Cambridge University Press, vol. 38(2), pages 399-422, November.
    Full references (including those not matched with items on IDEAS)

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