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