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Optimal Investment Policy for Insurers under the Constant Elasticity of Variance Model with a Correlated Random Risk Process

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  • Xiaotao Liu
  • Hailong Liu

Abstract

This paper investigates the optimal portfolio choice problem for a large insurer with negative exponential utility over terminal wealth under the constant elasticity of variance (CEV) model. The surplus process is assumed to follow a diffusion approximation model with the Brownian motion in which is correlated with that driving the price of the risky asset. We first derive the corresponding Hamilton–Jacobi–Bellman (HJB) equation and then obtain explicit solutions to the value function as well as the optimal control by applying a variable change technique and the Feynman–Kac formula. Finally, we discuss the economic implications of the optimal policy.

Suggested Citation

  • Xiaotao Liu & Hailong Liu, 2020. "Optimal Investment Policy for Insurers under the Constant Elasticity of Variance Model with a Correlated Random Risk Process," Mathematical Problems in Engineering, Hindawi, vol. 2020, pages 1-10, May.
    • Handle: RePEc:hin:jnlmpe:3143840
    DOI: 10.1155/2020/3143840
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    Cited by:

    1. K. Charalambous & S. Kontogiorgis & C. Sophocleous, 2021. "The Lie symmetry approach on (1+2)-dimensional financial models," Partial Differential Equations and Applications, Springer, vol. 2(4), pages 1-17, August.

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