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Linearisation techniques and the dual algorithm for a class of mixed singular/continuous control problems in reinsurance. Part II: Numerical aspects

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  • Goreac, Dan
  • Li, Juan
  • Wang, Pangbo
  • Xu, Boxiang

Abstract

This paper is intended as a companion to [12] and focuses on the numerical implementations of the method in the context of insurance problems with mixed controls: reinsurance acting as continuous control, and capital injection and dividend payment acting as singular ones. The aim is twofold. On the one hand, we provide a comparison of the output of our method in terms of the optimal value against two benchmarks. The first benchmark is provided by [4] in the no-reinsurance setting and when the claims are exponentially distributed. The second benchmark refers to [8] where capital injections are not permitted, but different claim distributions can be employed. On the other hand, we illustrate the improvement of the models in [8] when capital injection is allowed. We also look into the effect of reinsurance in the model [4]. Several cases for the equity cost parameter are discussed as are the boundary (or limit) situations.

Suggested Citation

  • Goreac, Dan & Li, Juan & Wang, Pangbo & Xu, Boxiang, 2024. "Linearisation techniques and the dual algorithm for a class of mixed singular/continuous control problems in reinsurance. Part II: Numerical aspects," Applied Mathematics and Computation, Elsevier, vol. 473(C).
    • Handle: RePEc:eee:apmaco:v:473:y:2024:i:c:s0096300324001279
    DOI: 10.1016/j.amc.2024.128655
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    References listed on IDEAS

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    1. Florin Avram & Dan Goreac & Jean-François Renaud, 2019. "The Løkka–Zervos Alternative for a Cramér–Lundberg Process with Exponential Jumps," Risks, MDPI, vol. 7(4), pages 1-9, December.
    2. Julia Eisenberg & Hanspeter Schmidli, 2011. "Minimising expected discounted capital injections by reinsurance in a classical risk model," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2011(3), pages 155-176.
    3. Pablo Azcue & Nora Muler, 2005. "Optimal Reinsurance And Dividend Distribution Policies In The Cramér‐Lundberg Model," Mathematical Finance, Wiley Blackwell, vol. 15(2), pages 261-308, April.
    4. GOREAC, Dan & LI, Juan & XU, Boxiang, 2022. "Linearisation Techniques and the Dual Algorithm for a Class of Mixed Singular/Continuous Control Problems in Reinsurance. Part I: Theoretical Aspects," Applied Mathematics and Computation, Elsevier, vol. 431(C).
    5. Florin Avram & Dan Goreac & Rim Adenane & Ulyses Solon, 2022. "Optimizing Dividends and Capital Injections Limited by Bankruptcy, and Practical Approximations for the Cramér-Lundberg Process," Methodology and Computing in Applied Probability, Springer, vol. 24(4), pages 2339-2371, December.
    6. Shapiro, Alexander, 2011. "Analysis of stochastic dual dynamic programming method," European Journal of Operational Research, Elsevier, vol. 209(1), pages 63-72, February.
    7. Kei Noba & Jos'e-Luis P'erez & Xiang Yu, 2019. "On the bail-out dividend problem for spectrally negative Markov additive models," Papers 1901.03021, arXiv.org, revised Feb 2020.
    8. Florin Avram & Zbigniew Palmowski & Martijn R. Pistorius, 2007. "On the optimal dividend problem for a spectrally negative L\'{e}vy process," Papers math/0702893, arXiv.org.
    9. Løkka, Arne & Zervos, Mihail, 2008. "Optimal dividend and issuance of equity policies in the presence of proportional costs," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 954-961, June.
    10. Hohmann, Marc & Warrington, Joseph & Lygeros, John, 2020. "A moment and sum-of-squares extension of dual dynamic programming with application to nonlinear energy storage problems," European Journal of Operational Research, Elsevier, vol. 283(1), pages 16-32.
    11. Florin Avram & Dan Goreac & Juan Li & Xiaochi Wu, 2021. "Equity Cost Induced Dichotomy for Optimal Dividends with Capital Injections in the Cramér-Lundberg Model," Mathematics, MDPI, vol. 9(9), pages 1-27, April.
    12. Kulenko, Natalie & Schmidli, Hanspeter, 2008. "Optimal dividend strategies in a Cramér-Lundberg model with capital injections," Insurance: Mathematics and Economics, Elsevier, vol. 43(2), pages 270-278, October.
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