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Optimal Investment for Insurers with the Extended CIR Interest Rate Model
Joint Authors
Source
Issue
Vol. 2014, Issue 2014 (31 Dec. 2014), pp.1-12, 12 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2014-06-30
Country of Publication
Egypt
No. of Pages
12
Main Subjects
Abstract EN
A fundamental challenge for insurance companies (insurers) is to strike the best balance between optimal investment and risk management of paying insurance liabilities, especially in a low interest rate environment.
The stochastic interest rate becomes a critical factor in this asset-liability management (ALM) problem.
This paper derives the closed-form solution to the optimal investment problem for an insurer subject to the insurance liability of compound Poisson process and the stochastic interest rate following the extended CIR model.
Therefore, the insurer’s wealth follows a jump-diffusion model with stochastic interest rate when she invests in stocks and bonds.
Our problem involves maximizing the expected constant relative risk averse (CRRA) utility function subject to stochastic interest rate and Poisson shocks.
After solving the stochastic optimal control problem with the HJB framework, we offer a verification theorem by proving the uniform integrability of a tight upper bound for the objective function.
American Psychological Association (APA)
Chiu, Mei Choi& Wong, Hoi Ying. 2014. Optimal Investment for Insurers with the Extended CIR Interest Rate Model. Abstract and Applied Analysis،Vol. 2014, no. 2014, pp.1-12.
https://search.emarefa.net/detail/BIM-1013307
Modern Language Association (MLA)
Chiu, Mei Choi& Wong, Hoi Ying. Optimal Investment for Insurers with the Extended CIR Interest Rate Model. Abstract and Applied Analysis No. 2014 (2014), pp.1-12.
https://search.emarefa.net/detail/BIM-1013307
American Medical Association (AMA)
Chiu, Mei Choi& Wong, Hoi Ying. Optimal Investment for Insurers with the Extended CIR Interest Rate Model. Abstract and Applied Analysis. 2014. Vol. 2014, no. 2014, pp.1-12.
https://search.emarefa.net/detail/BIM-1013307
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1013307