Optimal investment for insurer with jump-diffusion risk process

Hailiang Yang*, Lihong Zhang

*Corresponding author for this work

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Abstract

In this paper, we study optimal investment policies of an insurer with jump-diffusion risk process. Under the assumptions that the risk process is compound Poisson process perturbed by a standard Brownian motion and the insurer can invest in the money market and in a risky asset, we obtain the close form expression of the optimal policy when the utility function is exponential.
We also study the insurer’s optimal policy for general objective function, a verification theorem is proved by using martingale optimality principle and Ito’s formula for jump-diffusion process. In the case of minimizing ruin probability, numerical methods and numerical results are presented for various claim-size distributions.
Original languageEnglish
Pages (from-to)615-634
Number of pages20
JournalInsurance: Mathematics and Economics
Volume37
Issue number3
DOIs
Publication statusPublished - 2005
Externally publishedYes

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Yang, H., & Zhang, L. (2005). Optimal investment for insurer with jump-diffusion risk process. Insurance: Mathematics and Economics, 37(3), 615-634. https://doi.org/10.1016/j.insmatheco.2005.06.009