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Dividends and reinsurance under a penalty for ruin

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  • Liang, Zhibin
  • Young, Virginia R.

Abstract

We find the optimal dividend strategy in a diffusion risk model under a penalty for ruin, as in Thonhauser and Albrecher (2007), although we allow for both a positive and a negative penalty. Furthermore, we determine the optimal proportional reinsurance strategy, when so-called expensive reinsurance is available; that is, the premium loading on reinsurance is greater than the loading on the directly written insurance. One can think of our model as taking the one in Taksar (2000, Section 6) and adding a penalty for ruin.

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  • Liang, Zhibin & Young, Virginia R., 2012. "Dividends and reinsurance under a penalty for ruin," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 437-445.
    • Handle: RePEc:eee:insuma:v:50:y:2012:i:3:p:437-445
    DOI: 10.1016/j.insmatheco.2012.02.005
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    Cited by:

    1. Caibin Zhang & Zhibin Liang & Kam Chuen Yuen, 2019. "Optimal dynamic reinsurance with common shock dependence and state-dependent risk aversion," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-45, March.
    2. Jiyang Tan & Chun Li & Ziqiang Li & Xiangqun Yang & Bicheng Zhang, 2015. "Optimal dividend strategies in a delayed claim risk model with dividends discounted by stochastic interest rates," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 82(1), pages 61-83, August.
    3. Xiaoqing Liang & Zbigniew Palmowski, 2016. "A note on optimal expected utility of dividend payments with proportional reinsurance," Papers 1605.06849, arXiv.org, revised May 2017.
    4. Cheng, Gongpin & Zhao, Yongxia, 2016. "Optimal risk and dividend strategies with transaction costs and terminal value," Economic Modelling, Elsevier, vol. 54(C), pages 522-536.
    5. Xu, Ran & Woo, Jae-Kyung, 2020. "Optimal dividend and capital injection strategy with a penalty payment at ruin: Restricted dividend payments," Insurance: Mathematics and Economics, Elsevier, vol. 92(C), pages 1-16.
    6. Yao, Dingjun & Yang, Hailiang & Wang, Rongming, 2014. "Optimal risk and dividend control problem with fixed costs and salvage value: Variance premium principle," Economic Modelling, Elsevier, vol. 37(C), pages 53-64.

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