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Optimal investment and proportional reinsurance in a regime-switching market model under forward preferences

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  • Katia Colaneri
  • Alessandra Cretarola
  • Benedetta Salterini

Abstract

In this paper we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial frameworks are dependent since stock prices and insurance claims vary according to a common factor given by a continuous time finite state Markov chain. We construct the value function and we prove that it is a forward dynamic utility. Then, we characterize the investment strategy and the optimal proportional level of reinsurance. We also perform numerical experiments and provide sensitivity analyses with respect to some model parameters.

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  • Katia Colaneri & Alessandra Cretarola & Benedetta Salterini, 2021. "Optimal investment and proportional reinsurance in a regime-switching market model under forward preferences," Papers 2106.13888, arXiv.org.
    • Handle: RePEc:arx:papers:2106.13888
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    Cited by:

    1. Abbaspour, Manijeh & Vajargah, Kianoush Fathi & Azhdari, Parvin, 2023. "An efficient algorithm for pricing reinsurance contract under the regime-switching model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 211(C), pages 278-300.
    2. Ng, Kenneth Tsz Hin & Chong, Wing Fung, 2024. "Optimal investment in defined contribution pension schemes with forward utility preferences," Insurance: Mathematics and Economics, Elsevier, vol. 114(C), pages 192-211.

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