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Optimal reinsurance with a rescuing procedure

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  • Zeng, Xudong

Abstract

We consider a large insurance company whose reserve is modeled by a diffusion process. The management of the insurance company makes a decision on reinsurance in order to reduce the insurance risk. An optimal decision is the one which minimizes the expected time to reach a goal before the reserve reaches a ruin level. We introduce a rescuing procedure to deal with the case that the company is "too big to fail". We disclose that the optimal decision of the management heavily depends on how much time the company needs to wait for rescuing when it gets in trouble.

Suggested Citation

  • Zeng, Xudong, 2010. "Optimal reinsurance with a rescuing procedure," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 397-405, April.
    • Handle: RePEc:eee:insuma:v:46:y:2010:i:2:p:397-405
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    References listed on IDEAS

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    1. Victor C. Pestien & William D. Sudderth, 1985. "Continuous-Time Red and Black: How to Control a Diffusion to a Goal," Mathematics of Operations Research, INFORMS, vol. 10(4), pages 599-611, November.
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    3. Frostig, Esther, 2005. "The expected time to ruin in a risk process with constant barrier via martingales," Insurance: Mathematics and Economics, Elsevier, vol. 37(2), pages 216-228, October.
    4. Dickson,David C. M., 2005. "Insurance Risk and Ruin," Cambridge Books, Cambridge University Press, number 9780521846400.
    5. Constantinos Kardaras & Eckhard Platen, 2008. "Minimizing the Expected Market Time to Reach a Certain Wealth Level," Research Paper Series 230, Quantitative Finance Research Centre, University of Technology, Sydney.
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    Cited by:

    1. Taksar, Michael & Zeng, Xudong, 2011. "Optimal non-proportional reinsurance control and stochastic differential games," Insurance: Mathematics and Economics, Elsevier, vol. 48(1), pages 64-71, January.
    2. Zeng, Xudong & Luo, Shangzhen, 2013. "Stochastic Pareto-optimal reinsurance policies," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 671-677.

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