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Risks 2017, 5(1), 6; doi:10.3390/risks5010006

Optimal Investment and Liability Ratio Policies in a Multidimensional Regime Switching Model

1
Department of Applied Mathematics, University of Washington, Lewis Hall 202, Box 353925, Seattle, WA 98195-3925, USA
2
Department of Mathematical and Statistical Sciences, University of Alberta, Central Academic Building 639, Edmonton, AB T6G 2G1, Canada
*
Author to whom correspondence should be addressed.
Academic Editor: Mogens Steffensen
Received: 9 October 2016 / Revised: 20 December 2016 / Accepted: 12 January 2017 / Published: 22 January 2017
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Abstract

We consider an insurer who faces an external jump-diffusion risk that is negatively correlated with the capital returns in a multidimensional regime switching model. The insurer selects investment and liability ratio policies continuously to maximize her/his expected utility of terminal wealth. We obtain explicit solutions of optimal policies for logarithmic and power utility functions. We study the impact of the insurer’s risk aversion, the negative correlation between the external risk and the capital returns, and the regime of the economy on the optimal policy. We find, among other things, that the regime of the economy and the negative correlation between the external risk and the capital returns have a dramatic effect on the optimal policy. View Full-Text
Keywords: insurance; jump diffusion; optimal investment and liability; regime switching; risk management; stochastic control insurance; jump diffusion; optimal investment and liability; regime switching; risk management; stochastic control
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Zou, B.; Cadenillas, A. Optimal Investment and Liability Ratio Policies in a Multidimensional Regime Switching Model. Risks 2017, 5, 6.

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