Optimal investment and risk control problems with delay for an insurer in defaultable market

Chao Deng; Haixiang Yao; Yan Chen

doi:10.3934/jimo.2019070

Article Contents

2020, Volume 16, Issue 5: 2563-2579. Doi: 10.3934/jimo.2019070

This issue Previous Article Brualdi-type inequalities on the minimum eigenvalue for the Fan product of M-tensors Next Article

Optimal investment and risk control problems with delay for an insurer in defaultable market

1.
School of Finance, Guangdong University of Foreign Studies, 510006, Guangzhou, China
2.
Institute of Big Data and Internet Innovation, Hunan University of Commerce, 410205, Changsha, China
3.
Business School, Central South University, 410012, Changsha, China

^* Corresponding author: Yan Chen
^* Corresponding author: Yan Chen

Received: June 30, 2017

Revised: February 28, 2019

Early access: July 2019

Published: August 2020

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Abstract

This paper addresses a investment and risk control problem with a delay for an insurer in the defaultable market. Suppose that an insurer can invest in a risk-free bank account, a risky stock and a defaultable bond. Taking into account the history of the insurer's wealth performance, the controlled wealth process is governed by a stochastic delay differential equation. The insurer's goal is to maximize the expected exponential utility of the combination of terminal wealth and average performance wealth. We decompose the original optimization problem into two subproblems: a pre-default case and a post-default case. The explicit solutions in a finite dimensional space are derived for a illustrative situation, and numerical illustrations and sensitivity analysis for our results are provided.

Keywords:

Mathematics Subject Classification: Primary: 91B30; Secondary: 91B55, 60K05.

Citation:

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Figure 1. Effect of delay parameters $u$, $\alpha$ and $\beta$ on the optimal investment strategy $k^{*}(t)$

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Figure 2. Effect of delay parameters $u$, $\alpha$ and $\beta$ on the optimal investment strategy $\gamma^{*}(t)$

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Figure 3. Effect of delay parameters $u$, $\alpha$ and $\beta$ on the optimal risk control $l^{*}(t)$

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Figure 4. Value functions with respect to $x$

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Figure 5. Effect of delay parameters $\beta$ on the pre-default value function

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Figure 6. Effect of the default parameters $1/\Delta$ and $\zeta$ on the pre-default value function

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Table 1. Model parameter values

Symbol	Value	Symbol	Value
$ \alpha $	$ 0.1 $	$ \nu $	$ 1 $
$ u $	$ 5 $	$ \lambda $	$ 0.3 $
$ \beta $	$ 0.3 $	$ \theta $	$ 0.1 $
$ r $	$ 0.05 $	$ \eta $	$ 0.4 $
$ \zeta $	$ 0.5 $	$ p $	$ 1 $
$ \Delta $	$ 0.25 $	$ c $	$ 0.5 $
$ \mu $	$ 0.15 $	$ \sigma $	$ 0.2 $

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