Optimal Reinsurance Strategy for an Insurer and a Reinsurer with Generalized Variance Premium Principle

Abstract EN

This paper focuses on the optimal reinsurance problem with consideration of joint interests of an insurer and a reinsurer.

In our model, the risk process is assumed to follow a Brownian motion with drift.

The insurer can transfer the risk to the reinsurer via proportional reinsurance, and the reinsurance premium is calculated according to the variance and standard deviation premium principles.

The objective is to maximize the expected exponential utility of the weighted sum of the insurer’s and the reinsurer’s terminal wealth, where the weight can be viewed as a regularization parameter to measure the importance of each party.

By applying stochastic control theory, we establish the Hamilton–Jacobi–Bellman equation and obtain explicit expressions of optimal reinsurance strategies and optimal value functions.

Furthermore, we provide some numerical simulations to illustrate the effects of model parameters on the optimal reinsurance strategies.