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arXiv · 2210.10425

Optimal investment and reinsurance under exponential forward preferences

Katia Colaneri·Alessandra Cretarola·Benedetta Salterini
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Abstract

We study the optimal investment and proportional reinsurance problem of an insurance company, whose investment preferences are described via a forward dynamic utility of exponential type in a stochastic factor model allowing for a possible dependence between the financial and insurance markets. Specifically, we assume that the asset price process dynamics and the claim arrival intensity are both affected by a common stochastic process and we account for a possible environmental contagion effect through the non-zero correlation parameter between the underlying Brownian motions driving the asset price process and the stochastic factor dynamics. By stochastic control techniques, we construct a forward dynamic exponential utility, and we characterize the optimal investment and reinsurance strategy. Moreover, we investigate in detail the zero-volatility case and provide a comparison analysis with classical results in an analogous setting under backward utility preferences. We also discuss an extension of the conditional certainty equivalent. Finally, we perform a numerical analysis to highlight some features of the optimal strategy.

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Katia Colaneri, Alessandra Cretarola, Benedetta Salterini. 2022-10-19. Optimal investment and reinsurance under exponential forward preferences. https://arxiv.org/abs/2210.10425

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