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Equity Allocation and Portfolio Selection in Insurance: A simplified Portfolio Model

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  • Erik Taflin

    (AXA)

Abstract

A quadratic discrete time probabilistic model, for optimal portfolio selection in (re-)insurance is studied. For positive values of underwriting levels, the expected value of the accumulated result is optimized, under constraints on its variance and on annual ROE's. Existence of a unique solution is proved and a Lagrangian formalism is given. An effective method for solving the Euler-Lagrange equations is developed. The approximate determination of the multipliers is discussed. This basic model is an important building block for more complete models.

Suggested Citation

  • Erik Taflin, 1999. "Equity Allocation and Portfolio Selection in Insurance: A simplified Portfolio Model," GE, Growth, Math methods 9906002, University Library of Munich, Germany, revised 23 Jul 1999.
    • Handle: RePEc:wpa:wuwpge:9906002
    Note: Type of document submitted: Postscript; prepared with LaTeX2e;
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    References listed on IDEAS

    as
    1. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
    2. Erik Taflin, 1999. "Equity Allocation and Portfolio Selection in Insurance," Papers math/9907160, arXiv.org.
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    More about this item

    Keywords

    Insurance; Equity Allocation; Portfolio Selection;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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