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- Title
Optimal reinsurance-investment problem in a constant elasticity of variance stock market for jump-diffusion risk model.
- Authors
Liang, Zhibin; Yuen, Kam Chuen; Cheung, Ka Chun
- Abstract
In this paper, we consider the jump-diffusion risk model with proportional reinsurance and stock price process following the constant elasticity of variance model. Compared with the geometric Brownian motion model, the advantage of the constant elasticity of variance model is that the volatility has correlation with the risky asset price, and thus, it can explain the empirical bias exhibited by the Black and Scholes model, such as volatility smile. Here, we study the optimal investment-reinsurance problem of maximizing the expected exponential utility of terminal wealth. By using techniques of stochastic control theory, we are able to derive the explicit expressions for the optimal strategy and value function. Numerical examples are presented to show the impact of model parameters on the optimal strategies. Copyright © 2011 John Wiley & Sons, Ltd.
- Subjects
REINSURANCE; BUSINESS models; STOCK prices; STOCK exchanges; WIENER processes; MARKET volatility
- Publication
Applied Stochastic Models in Business & Industry, 2012, Vol 28, Issue 6, p585
- ISSN
1524-1904
- Publication type
Article
- DOI
10.1002/asmb.934