Optimal per-loss reinsurance and investment to minimize the probability of drawdown

DOI10.3934/JIMO.2021145arXiv2010.12158MaRDI QIDQ6352045FDOQ6352045

Authors: Xia Han, Zhibin Liang, Y. Yuan, Caibin Zhang 

Publication date: 23 October 2020

Abstract: In this paper, we study an optimal reinsurance-investment problem in a risk model with two dependent classes of insurance business, where the two claim number processes are correlated through a common shock component. We assume that the insurer can purchase per-loss reinsurance for each line of business and invest its surplus in a financial market consisting of a risk-free asset and a risky asset. Under the criterion of minimizing the probability of drawdown, the closed-form expressions of the optimal reinsurance-investment strategy and the corresponding value function are obtained. We show that the optimal reinsurance strategy is in the form of pure excess-of-loss reinsurance strategy under the expected value principle, and under the variance premium principle, the optimal reinsurance strategy is in the form of pure quota-share reinsurance. Furthermore, we extend our model to the case where the insurance company involves $n$ $(ngeq3)$ dependent classes of insurance business and the optimal results are derived explicitly as well.

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Optimal stochastic control (93E20)

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