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Optimal reinsurance-investment strategy under risks of interest rate, exchange rate and inflation. (English) Zbl 1411.91281

Summary: In this paper, we pursue the optimal reinsurance-investment strategy of an insurer who can invest in both domestic and foreign markets. We assume that both the domestic and the foreign nominal interest rates are described by extended Cox-Ingersoll-Ross (CIR) models. In order to hedge the risk associated to investments, rolling bonds, treasury inflation protected securities and futures are purchased by the insurer. We use the dynamic programming principles to explicitly derive both the value function and the optimal reinsurance-investment strategy. As a conclusion, we analyze the impact of the model parameters on both the optimal strategy and the optimal utility.

MSC:

91B30 Risk theory, insurance (MSC2010)
49L20 Dynamic programming in optimal control and differential games
90C39 Dynamic programming
91G80 Financial applications of other theories
91G30 Interest rates, asset pricing, etc. (stochastic models)
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