Optimal Risk Control and Dividend Distribution Policies. Example of Excess-of Loss Reinsurance for an Insurance Corporation (1998)
| Venue: | Example of Excess-of Loss Reinsurance, Finance and Stochastics |
| Citations: | 7 - 4 self |
BibTeX
@ARTICLE{Asmussen98optimalrisk,
author = {Søren Asmussen and Bjarne Højgaard and Michael Taksar},
title = {Optimal Risk Control and Dividend Distribution Policies. Example of Excess-of Loss Reinsurance for an Insurance Corporation},
journal = {Example of Excess-of Loss Reinsurance, Finance and Stochastics},
year = {1998},
volume = {4},
pages = {299--324}
}
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Abstract
We consider a model of a financial corporation which has to find an optimal policy balancing its risk and expected profits. The example treated in this paper is related to an insurance company with the risk control method known in the industry as excess-of-loss reinsurance. Under this scheme the insurance company divert part of its premium stream to another company in exchange of an obligation to pick up that amount of each claim which exceeds a certain level a, This reduces the risk but it also reduces the potential profit. The objective is to make a dynamic choice of a and find the dividend distribution policy, which maximizes the cumulative expected discounted dividend pay-outs. We use diffusion approximation for this optimal control problem. Mathematical it becomes a mixed singular-regular control problem for diffusion processes. Its analytical part is related to a free boundary (Stephan) problem for a linear second order differential equation. 1 Introduction The problem of optim...
