TITLE:
Optimal Investment-Reinsurance Strategies for Insurers with Mean-Reversion and Mispricing under Variance Premium Principle
AUTHORS:
Yuzhen Wen
KEYWORDS:
Proportional Reinsurance, Robust Control, Optimal Investment Strategy, Utility Function, Mispricing
JOURNAL NAME:
Applied Mathematics,
Vol.9 No.7,
July
25,
2018
ABSTRACT: This paper considers a robust optimal reinsurance-investment problem for an
insurer with mispricing and model ambiguity. The surplus process is described
by a classical Cramér-Lunderg model and the financial market contains
a market index, a risk-free asset and a pair of mispriced stocks, where the
expected return rate of the stocks and the mispricing follow mean reverting
processes which take into account liquidity constraints. In particular, both the
insurance and reinsurance premium are assumed to be calculated via the variance
premium principle. By employing the dynamic programming approach,
we derive the explicit optimal robust reinsurance-investment strategy
and the optimal value function.