New Economics and Finance Data Have Been Reported by Investigators at Renmin University of China (Optimal Investment and Reinsurance Policies for an Insurer With Ambiguity Aversion)

2021 MAY 26 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- New research on Finance - Economics and Finance is the subject of a report. According to news originating from Beijing, People’s Republic of China, by NewsRx correspondents, research stated, “In this paper, we study the optimal investment and reinsurance problem for an insurer based on the variance premium principle, in which three cases are considered. First, we assume that the financial market does not exist.”

Financial supporters for this research include National Natural Science Foundation of China (NSFC), MOE Project of Key Research Institute of Humanities and Social Science, China at Universities, MOE Project of Humanities and Social Sciences, China.

Our news journalists obtained a quote from the research from the Renmin University of China, “The insurer only holds an insurance business, and the optimal reinsurance problem is studied. Subsequently, we assume that there exists a financial market with an accurately modeled risky asset. The optimal investment and reinsurance problem is investigated under these conditions. Finally, we consider the general case in which the insurer is concerned about the model ambiguity of both the insurance market and the financial market. In all three cases, the value function is set to maximize the expected utility of terminal wealth. By employing the dynamic programming principle, we derive the Hamilton-Jacobi-Bellman (HJB) equations, which are satisfied by the value functions and obtain closed-form solutions for optimal reinsurance and investment policies and the value functions in all three cases. Most interestingly, we elucidate how investment improves the insurer’s utility and find that the existence of ambiguity can significantly affect the optimal policies and value functions. We also compare the ambiguities in the two markets and find that ambiguity in the insurance market has much more significant impact on the value function than the ambiguity in the financial market. It implies that it is more valuable for insurer to precisely evaluate the insurance risk.”

According to the news editors, the research concluded: “We also provide some numerical examples and economic explanations to illustrate our results.”

This research has been peer-reviewed.

For more information on this research see: Optimal Investment and Reinsurance Policies for an Insurer With Ambiguity Aversion. The North American Journal of Economics and Finance, 2021;55. The North American Journal of Economics and Finance can be contacted at: Elsevier Science Inc, Ste 800, 230 Park Ave, New York, NY 10169, USA.

The news correspondents report that additional information may be obtained from Ming Zhou, Renmin University of China, Dept Risk Management & Actuarial Sci, Beijing 100872, People’s Republic of China. Additional authors for this research include Bing Liu and Hui Meng.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1016/j.najef.2020.101303. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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