Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model
This paper considers the reinsurance-investment problem with interest rate risks under constant relative risk aversion and constant absolute risk aversion preferences, respectively. Stochastic control theory and dynamic programming principle are applied to investigate the optimal proportional reinsu...
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| Format: | Article |
| Language: | English |
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Wiley
2022-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2022/3974488 |
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| _version_ | 1832566208658931712 |
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| author | Hanlei Hu Shaoyong Lai Hongjing Chen |
| author_facet | Hanlei Hu Shaoyong Lai Hongjing Chen |
| author_sort | Hanlei Hu |
| collection | DOAJ |
| description | This paper considers the reinsurance-investment problem with interest rate risks under constant relative risk aversion and constant absolute risk aversion preferences, respectively. Stochastic control theory and dynamic programming principle are applied to investigate the optimal proportional reinsurance-investment strategy for an insurer under the Vasicek stochastic interest rate model. Solving the corresponding Hamilton-Jacobi-Bellman equation via the Legendre transform approach, the optimal premium allocation strategies maximizing the expected utilities of terminal wealth are derived. In addition, several sensitivity analyses and numerical illustrations are given to analyze the impacts of different risk preferences and interest rate fluctuation on the optimal strategies. We find that the asset allocation and reinsurance ratio of the insurer are correlated with risk preference coefficient and interest rate fluctuation, and the insurance company may adjust the reinsurance-investment strategy to deal with interest rate risk. |
| format | Article |
| id | doaj-art-5d419b1570ab491dbd16d6bf62b9025a |
| institution | Kabale University |
| issn | 1607-887X |
| language | English |
| publishDate | 2022-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-5d419b1570ab491dbd16d6bf62b9025a2025-02-03T01:04:44ZengWileyDiscrete Dynamics in Nature and Society1607-887X2022-01-01202210.1155/2022/3974488Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate ModelHanlei Hu0Shaoyong Lai1Hongjing Chen2Southwest Jiaotong UniversitySouthwestern University of Finance and EconomicsChengdu University of Information TechnologyThis paper considers the reinsurance-investment problem with interest rate risks under constant relative risk aversion and constant absolute risk aversion preferences, respectively. Stochastic control theory and dynamic programming principle are applied to investigate the optimal proportional reinsurance-investment strategy for an insurer under the Vasicek stochastic interest rate model. Solving the corresponding Hamilton-Jacobi-Bellman equation via the Legendre transform approach, the optimal premium allocation strategies maximizing the expected utilities of terminal wealth are derived. In addition, several sensitivity analyses and numerical illustrations are given to analyze the impacts of different risk preferences and interest rate fluctuation on the optimal strategies. We find that the asset allocation and reinsurance ratio of the insurer are correlated with risk preference coefficient and interest rate fluctuation, and the insurance company may adjust the reinsurance-investment strategy to deal with interest rate risk.http://dx.doi.org/10.1155/2022/3974488 |
| spellingShingle | Hanlei Hu Shaoyong Lai Hongjing Chen Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model Discrete Dynamics in Nature and Society |
| title | Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model |
| title_full | Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model |
| title_fullStr | Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model |
| title_full_unstemmed | Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model |
| title_short | Optimal Asset Allocation for CRRA and CARA Insurers under the Vasicek Interest Rate Model |
| title_sort | optimal asset allocation for crra and cara insurers under the vasicek interest rate model |
| url | http://dx.doi.org/10.1155/2022/3974488 |
| work_keys_str_mv | AT hanleihu optimalassetallocationforcrraandcarainsurersunderthevasicekinterestratemodel AT shaoyonglai optimalassetallocationforcrraandcarainsurersunderthevasicekinterestratemodel AT hongjingchen optimalassetallocationforcrraandcarainsurersunderthevasicekinterestratemodel |