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Article: A BSDE approach to a class of dependent risk model of mean-variance insurers with stochastic volatility and no-short selling

TitleA BSDE approach to a class of dependent risk model of mean-variance insurers with stochastic volatility and no-short selling
Authors
KeywordsBackward stochastic differential equation
Dependent risks
Efficient frontier
Mean–variance criterion
Stochastic volatility
Issue Date2020
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/cam
Citation
Journal of Computational and Applied Mathematics, 2020, v. 366, p. article no. 112413 How to Cite?
AbstractThis paper studies the optimal reinsurance and investment strategy for an insurer with two dependent classes of insurance business, where the claim number processes are correlated through a common shock. It is assumed that the insurer also faces the decision making of investing in a financial market with one risk-free asset and one risky asset following the Heston stochastic volatility (SV) model. The insurer is not allowed to short sell the risky asset. Under the mean–variance criterion, we consider the insurer's problem of maximizing the expected terminal wealth and, at the same time, minimizing the variance of the terminal wealth. Using the results of stochastic linear–quadratic (LQ) optimal control and backward stochastic differential equations (BSDEs), we derive closed-form expressions for the optimal strategies and the efficient frontiers in terms of solutions to the BSDEs. Our approach shows how BSDEs can be used to solve mean–variance problems in insurance applications. Finally, economic behavior of the efficient frontiers is analyzed by using some numerical examples. © 2019 Elsevier B.V.
Persistent Identifierhttp://hdl.handle.net/10722/274432
ISSN
2019 Impact Factor: 2.037
2015 SCImago Journal Rankings: 1.089

 

DC FieldValueLanguage
dc.contributor.authorSun, Z-
dc.contributor.authorYuen, KC-
dc.contributor.authorGuo, J-
dc.date.accessioned2019-08-18T15:01:36Z-
dc.date.available2019-08-18T15:01:36Z-
dc.date.issued2020-
dc.identifier.citationJournal of Computational and Applied Mathematics, 2020, v. 366, p. article no. 112413-
dc.identifier.issn0377-0427-
dc.identifier.urihttp://hdl.handle.net/10722/274432-
dc.description.abstractThis paper studies the optimal reinsurance and investment strategy for an insurer with two dependent classes of insurance business, where the claim number processes are correlated through a common shock. It is assumed that the insurer also faces the decision making of investing in a financial market with one risk-free asset and one risky asset following the Heston stochastic volatility (SV) model. The insurer is not allowed to short sell the risky asset. Under the mean–variance criterion, we consider the insurer's problem of maximizing the expected terminal wealth and, at the same time, minimizing the variance of the terminal wealth. Using the results of stochastic linear–quadratic (LQ) optimal control and backward stochastic differential equations (BSDEs), we derive closed-form expressions for the optimal strategies and the efficient frontiers in terms of solutions to the BSDEs. Our approach shows how BSDEs can be used to solve mean–variance problems in insurance applications. Finally, economic behavior of the efficient frontiers is analyzed by using some numerical examples. © 2019 Elsevier B.V.-
dc.languageeng-
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/cam-
dc.relation.ispartofJournal of Computational and Applied Mathematics-
dc.subjectBackward stochastic differential equation-
dc.subjectDependent risks-
dc.subjectEfficient frontier-
dc.subjectMean–variance criterion-
dc.subjectStochastic volatility-
dc.titleA BSDE approach to a class of dependent risk model of mean-variance insurers with stochastic volatility and no-short selling-
dc.typeArticle-
dc.identifier.emailYuen, KC: kcyuen@hku.hk-
dc.identifier.authorityYuen, KC=rp00836-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.cam.2019.112413-
dc.identifier.scopuseid_2-s2.0-85070970833-
dc.identifier.hkuros302340-
dc.identifier.volume366-
dc.identifier.spagearticle no. 112413-
dc.identifier.epagearticle no. 112413-
dc.publisher.placeNetherlands-

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