## Abstract

This paper derives the optimal debt ratio and dividend payment strategies for an insurance company. Taking into account the impact of reinsurance policies and claims from the credit derivatives, the surplus process is stochastic that is jointly determined by the reinsurance strategies, debt levels, and unanticipated shocks. The objective is to maximize the total expected discounted utility of dividend

payment until financial ruin. Using dynamic programming principle, the value function is the solution of a second-order nonlinear Hamilton–Jacobi–Bellman equation. The subsolution–supersolution method is used to verify the existence of classical solutions of the Hamilton–Jacobi–Bellman equation. The explicit

solution of the value function is derived and the corresponding optimal debt ratio and dividend payment strategies are obtained in some special cases. An example is provided to illustrate the methodologies and some interesting economic insights.

payment until financial ruin. Using dynamic programming principle, the value function is the solution of a second-order nonlinear Hamilton–Jacobi–Bellman equation. The subsolution–supersolution method is used to verify the existence of classical solutions of the Hamilton–Jacobi–Bellman equation. The explicit

solution of the value function is derived and the corresponding optimal debt ratio and dividend payment strategies are obtained in some special cases. An example is provided to illustrate the methodologies and some interesting economic insights.

Original language | English |
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Pages (from-to) | 351-363 |

Number of pages | 13 |

Journal | Insurance: Mathematics and Economics |

Volume | 64 |

DOIs | |

Publication status | Published - 15 Sept 2015 |

Externally published | Yes |