School Seminars and Colloquia

Optimal Proportional Reinsurance and Investment with Regime-switching for Mean-variance Insurers

Stochastic Processes and Financial Mathematics

by Ping Chen


Institution: Department of Economics, The University of Melbourne
Date: Thu 26th April 2012
Time: 4:15 PM
Location: DAVID CARO-Rm:Podium 208-Flr:2

Abstract: Following the framework of Promislow and Young (2005), this paper considers
an optimal investment-reinsurance problem of an insurer facing a claim process
modeled by a Brownian motion with drift under the Markowitz’s mean-variance
criteria. The market modes are divided into a finite number of regimes. All the key
parameters change according to the value of different market modes. The insurer
chooses to purchase proportional reinsurance to reduce the underlying risk. In
addition to the reinsurance, we suppose that the insurer is allowed to invest its
surplus in a financial market consisting of a risk-free asset (bond or bank account)
and a risky asset whose price process is modeled by a geometric Brownian motion.
We investigate the feasibility of the problem, obtain an analytic expression for the
optimal strategy, delineate the efficient frontier and demonstrate our results with
numerical examples. (joint work with
Ka Chun Joseph Sung, Sheung Chi Phillip Yam)