Optimal Excess-of-Loss Reinsurance and Investment Problem for Insurers with Loss Aversion - Theoretical Economics Letters

TEL > Vol.9 No.4, April 2019

Optimal Excess-of-Loss Reinsurance and Investment Problem for Insurers with Loss Aversion ()

HTML XML

Download as PDF (Size: 2463KB) PP. 1129-1151

DOI: 10.4236/tel.2019.94073 657 Downloads 1,546 Views Citations

Author(s)

Qingya Sun, Ximin Rong, Hui Zhao^*

Affiliation(s)

School of Mathematics, Tianjin University, Tianjin, China.

ABSTRACT

This paper studies an optimal reinsurance and investment problem for a loss-averse insurer. The insurer’s goal is to choose the optimal strategy to maximize the expected S-shaped utility from the terminal wealth. The surplus process of the insurer is assumed to follow a classical Cramér-Lundberg (C-L) model and the insurer is allowed to purchase excess-of-loss reinsurance. Moreover, the insurer can invest in a risk-free asset and a risky asset. The dynamic problem is transformed into an equivalent static optimization problem via martingale approach and then we derive the optimal strategy in closed-form. Finally, we present some numerical simulation to illustrate the effects of market parameters on the optimal terminal wealth and the optimal strategy, and explain some economic phenomena from these results.

KEYWORDS

Loss Aversion, Excess-of-Loss Reinsurance, Martingale Approach, Investment, S-Shaped Utility

Share and Cite:

Sun, Q. , Rong, X. and Zhao, H. (2019) Optimal Excess-of-Loss Reinsurance and Investment Problem for Insurers with Loss Aversion. Theoretical Economics Letters, 9, 1129-1151. doi: 10.4236/tel.2019.94073.

Journals Menu

Follow SCIRP

	+1 323-425-8868
	customer@scirp.org
	+86 18163351462(WhatsApp)
	1655362766

	Paper Publishing WeChat

Journals Menu

Home

About SCIRP

Service

Policies