Reports from University of Melbourne Provide New Insights into Insurance Economics (Optimal reinsurance under dynamic VaR constraint)

Insurance Weekly News

By a News Reporter-Staff News Editor at Insurance Weekly News -- Investigators discuss new findings in Economics - Insurance Economics. According to news originating from Melbourne, Australia, by VerticalNews correspondents, research stated, "This paper deals with the optimal reinsurance strategy from an insurer's point of view. Our objective is to find the optimal policy that maximises the insurer's survival probability."

Our news journalists obtained a quote from the research from the University of Melbourne, "To meet the requirement of regulators and provide a tool to risk management, we introduce the dynamic version of Value-at Risk (VaR), Conditional Value-at-Risk (CVaR) and worst-case CVaR (wcCVaR) constraints in diffusion model and the risk measure limit is proportional to company's surplus in hand. In the dynamic setting, a CVaR/wcCVaR constraint is equivalent to a VaR constraint under a higher confidence level. Applying dynamic programming technique, we obtain closed form expressions of the optimal reinsurance strategies and corresponding survival probabilities under both proportional and excess-of loss reinsurance."

According to the news editors, the research concluded: "Several numerical examples are provided to illustrate the impact caused by dynamic VaR/CVaR/wcCVaR limit in both types of reinsurance policy."

For more information on this research see: Optimal reinsurance under dynamic VaR constraint. Insurance Mathematics & Economics, 2016;71():232-243. Insurance Mathematics & Economics can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands.

The news correspondents report that additional information may be obtained from S.M. Li, University of Melbourne, Dept. of Econ, Center Actuarial Studies, Melbourne, Vic 3010, Australia. Additional authors for this research include Z. Jin, S.M. Li and P. Chen.