Abstract
In this paper, we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial frameworks are dependent since stock prices and insurance claims vary according to a common factor given by a continuous time finite state Markov chain. We construct the value function and we prove that it is a forward dynamic utility. Then, we characterize the optimal investment strategy and the optimal proportional level of reinsurance. We also perform numerical experiments and provide sensitivity analyses with respect to some model parameters.
Highlights
Matteo BrachettaIn this paper, we study the optimal reinsurance-investment problem in a regimeswitching model for an insurance company, whose preferences are described by forward dynamic utilities
We have proposed an interdependent insurance-financial market model where a common stochastic factor, which is modeled as a continuous time finite state
We have conducted numerical experiments, in the case of a two-state Markov chain, that confirm that the optimal forward investment strategy is more aggressive, especially for larger values of the stock price
Summary
We study the optimal reinsurance-investment problem in a regimeswitching model for an insurance company, whose preferences are described by forward dynamic utilities. The modeling framework proposed by our paper takes into consideration possible dependence between financial and insurance markets via the presence of a continuous time finite state Markov chain affecting the asset price dynamics, as well as the claim arrival intensity. This additional stochastic factor may represent some economic or geographical conditions, natural events or pandemics, that can have a considerable impact on certain lines of business of insurance companies and affect returns of investment portfolios.
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