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Optimal Reinsurance-Investment Strategy Under Risks of Interest Rate, Exchange Rate and Inflation

  • Chang Guo
  • Xiaoyang Zhuo
  • Corina Constantinescu
  • Olivier Menoukeu Pamen
Open Access
Article
  • 149 Downloads

Abstract

In this paper, we pursue the optimal reinsurance-investment strategy of an insurer who can invest in both domestic and foreign markets. We assume that both the domestic and the foreign nominal interest rates are described by extended Cox-Ingersoll-Ross (CIR) models. In order to hedge the risk associated to investments, rolling bonds, treasury inflation protected securities and futures are purchased by the insurer. We use the dynamic programming principles to explicitly derive both the value function and the optimal reinsurance-investment strategy. As a conclusion, we analyze the impact of the model parameters on both the optimal strategy and the optimal utility.

Keywords

Optimal reinsurance-investment strategy Foreign exchange market Extended CIR Stochastic inflation Dynamic programming principle 

Mathematics Subject Classification (2010)

49L20 91G80 

Notes

Acknowledgements

This research has been carried out with funding provided by the Alexander von Humboldt Foundation, under the programme financed by the German Federal Ministry of Education and Research entitled German Research Chair No 01DG15010 and by the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement No. 318984-RARE. The second author gratefully acknowledge the support of Natural Science Foundation of China under grant agreement No. 71532001.

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Copyright information

© The Author(s) 2018

Open AccessThis article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Authors and Affiliations

  • Chang Guo
    • 1
  • Xiaoyang Zhuo
    • 2
  • Corina Constantinescu
    • 3
  • Olivier Menoukeu Pamen
    • 3
    • 4
    • 5
  1. 1.School of FinanceNankai UniversityTianjinChina
  2. 2.Business SchoolNankai UniversityTianjinChina
  3. 3.Institute for Financial and Actuarial Mathematics, Department of Mathematical SciencesUniversity of LiverpoolLiverpoolUK
  4. 4.African Institute for Mathematical SciencesAccraGhana
  5. 5.University of GhanaAccraGhana

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