Optimal investment and reinsurance under the gamma process (Q2241632)

The outgo for claims of an insurance portfolio is modelled by the Gamma process. In addition, the insurer can buy proportional or excess of loss reinsurance and invest the the surplus in a risky and a secure asset. There is no restriction for the investment. But it is not possible to buy more than full reinsurance. However, for proportional reinsurance a negative proportion can be reinsured, interpreted by the authors that additional business is purchased. Two problems are considered. First, the expected exponential utility at a fixed horizon is maximised. Second, the ruin probability is minimised. Both problems are explicitly solved for both of the reinsurance forms. The exponential utility has the advantage that the problems of reinsurance and investment can be separated and solved independently. For minimising the ruin probability, the secure asset implies that there is a level above which the whole portfolio can be reinsured by the interest payments; so full reinsurance and no investment into the risky asset will be optimal above this level. It would be interesting how the solutions looks like if the secure asset would not pay interest. The paper concludes with several numerical examples.