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| Optimal Reinsurance-Investment Strategies in a Mean-Reverting Market |
| WANG Lei, GU Meng-Di |
| (Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai 200052, China) |
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Abstract In a mean-reverting market, how to arrange reinsurance and investment proportions is a practical problem faced by general insurers. Assuming that the price of the risky asset is simulated by the exponential OrnsteinUhlenbeck process and the claim process follows a Brownian motion with drift, the optimal proportional reinsurance and investment decisions for insurers with power utility or exponential utility function were studied by stochastic control. A numerical simulation was presented to illustrate the relationship between the speed of mean-reversion and the optimal investment strategy. The results indicate that in a meanreverting market, the optimal strategy depends on not only time and wealth but also the extent of the spot price of the risky asset deviating from the mean value. The predictability of prices requires decision makers to judge the market stage and decide investment strategy in the light of market trend.
Key words：
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Received: 25 May 2012
Published: 28 March 2013
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