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OPTIMAL DIVIDEND AND REINSURANCE STRATEGIES WITH FINANCING AND LIQUIDATION VALUE

Published online by Cambridge University Press:  25 January 2016

Dingjun Yao ,
Hailiang Yang  and
Rongming Wang
Dingjun Yao
Affiliation:
School of Finance, Nanjing University of Finance and Economics, Nanjing 210023, ChinaThe Center of Cooperative Innovation for Modern Service Industry, Nanjing 210023, China E-Mail: [email protected]
Hailiang Yang*
Affiliation:
Department of Statistics and Actuarial Science, The University of Hong Kong, Hong Kong, China
Rongming Wang
Affiliation:
School of Statistics, Faculty of Economics and Management, East China Normal University, Shanghai 200241, China E-Mail: [email protected]
*
E-Mail: [email protected]
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Abstract

This study investigates a combined optimal financing, reinsurance and dividend distribution problem for a big insurance portfolio. A manager can control the surplus by buying proportional reinsurance, paying dividends and raising money dynamically. The transaction costs and liquidation values at bankruptcy are included in the risk model. Under the objective of maximising the insurance company's value, we identify the insurer's joint optimal strategies using stochastic control methods. The results reveal that managers should consider financing if and only if the terminal value and the transaction costs are not too high, less reinsurance is bought when the surplus increases or dividends are always distributed using the barrier strategy.

Keywords

Dividend strategyfinancing strategyproportional reinsurancetransaction costsliquidation value
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 46 , Issue 2 , May 2016 , pp. 365 - 399
Copyright
Copyright © Astin Bulletin 2016 

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