Optimal proportional reinsurance and investment with transaction costs, I: Maximizing the terminal wealth
We consider a problem of optimal reinsurance and investment with multiple risky assets for an insurance company whose surplus is governed by a linear diffusion. The insurance company's risk can be reduced through reinsurance, while in addition the company invests its surplus in a financial market with one risk-free asset and n risky assets. In this paper, we consider the transaction costs when investing in the risky assets. Also, we use Conditional Value-at-Risk (CVaR) to control the whole risk. We consider the optimization problem of maximizing the expected exponential utility of terminal wealth and solve it by using the corresponding Hamilton-Jacobi-Bellman (HJB) equation. Explicit expression for the optimal value function and the corresponding optimal strategies are obtained.
Year of publication: |
2009
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Authors: | Zhang, Xin-Li ; Zhang, Ke-Cun ; Yu, Xing-Jiang |
Published in: |
Insurance: Mathematics and Economics. - Elsevier, ISSN 0167-6687. - Vol. 44.2009, 3, p. 473-478
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Publisher: |
Elsevier |
Keywords: | Conditional value-at-risk Exponential utility Hamilton-Jacobi-Bellman equation Proportional reinsurance Transaction costs |
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