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Worst‐Case Investment and Reinsurance Optimization for an Insurer under Model Uncertainty

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  • Xiangbo Meng
  • Ximin Rong
  • Lidong Zhang
  • Ziping Du

Abstract

In this paper, we study optimal investment‐reinsurance strategies for an insurer who faces model uncertainty. The insurer is allowed to acquire new business and invest into a financial market which consists of one risk‐free asset and one risky asset whose price process is modeled by a Geometric Brownian motion. Minimizing the expected quadratic distance of the terminal wealth to a given benchmark under the “worst‐case” scenario, we obtain the closed‐form expressions of optimal strategies and the corresponding value function by solving the Hamilton‐Jacobi‐Bellman (HJB) equation. Numerical examples are presented to show the impact of model parameters on the optimal strategies.

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Handle: RePEc:wly:jnddns:v:2016:y:2016:i:1:n:9693419
DOI: 10.1155/2016/9693419
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