Optimal insurance with counterparty and additive background risk (Q6556607)

The paper focuses on optimal insurance designs, when the insured faces insurable, counterparty, and background risks simultaneously. Identifying the optimal solution for the mean-variance optimization problem is the aim of the study. The methodological framework uses techniques of the calculus of variations. After introducing the scheme of the optimization problem, both implicit and explicit representations of the optimal solution are provided. Then, optimal strategies are created by incorporating special dependence structures among the three risk source. Some numerical examples demonstrate the potential applications of the proposed methodology. Proofs and technical details are contained in the Appendix.