Optimal dividend and investing control of an insurance company with higher solvency constraints (Q654829)

Fluctuations of the reserve of a large insurance company are modeled by a controlled diffusion process. The company is able to purchase proportional reinsurance and invest in a financial security, the price of which follows a geometric Brownian motion. Dividend payouts to shareholders decrease the reserve. The company is declared bankrupt if the reserve falls short of a stipulated minimum level. The paper studies the optimization problem of maximizing the expected present value of future dividends, up to a fixed time horizon or bankruptcy, by controlling jointly the percentage of exposure passed to the reinsurer and the dividend payouts. Maximization is done under constraints on the probability of bankruptcy. The optimal policy is then characterized by a stochastic differential equation for the reserve process, with a reflecting boundary condition.