Risk process with a periodic reinsurance: Choosing an optimal reinsurance strategy of a total risk

Abstract

In this work, we study the optimal risk sharing problem for an insurer between himself and a reinsurer in a dynamical insurance model known as the Kramer–Lundberg risk process, which, unlike known models, models not per claim reinsurance but rather periodic reinsurance of damages over a given time interval. Here we take into account a natural upper bound on the risk taken by the reinsurer. We solve optimal control problems on an infinite time interval for mean-variance optimality criteria: a linear utility functional and a stationary variation coefficient. We show that optimal reinsurance belongs to the class of total risk reinsurances. We establish that the most profitable reinsurance is the stop-loss reinsurance with an upper limit. We find equations for the values of parameters in optimal reinsurance strategies.