Journal article

MARKOWITZ'S MEAN-VARIANCE OPTIMIZATION WITH INVESTMENT AND CONSTRAINED REINSURANCE

Nan Zhang, Ping Chen, Zhuo Jin, Shuanming Li

Journal of Industrial and Management Optimization | AMER INST MATHEMATICAL SCIENCES-AIMS | Published : 2017

Abstract

This paper deals with the optimal investment-reinsurance strategy for an insurer under the criterion of mean-variance. The risk process is the diffusion approximation of a compound Poisson process and the insurer can invest its wealth into a financial market consisting of one risk-free asset and one risky asset, while short-selling of the risky asset is prohibited. On the side of reinsurance, we require that the proportion of insurer's retained risk belong to [0; 1], is adopted. According to the dynamic programming in stochastic optimal control, the resulting Hamilton-Jacobi-Bellman (HJB) equation may not admit a classical solution. In this paper, we construct a viscosity solution for the HJ..

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