OPTIMAL REINSURANCE-INVESTMENT PROBLEM FOR A GENERAL INSURANCE COMPANY UNDER A GENERALIZED DYNAMIC CONTAGION CLAIM MODEL

Abstract

In this paper, we study an optimal management problem for a general insurance company which holds shares of an insurance company and a reinsurance company. The general company aims to derive the equilibrium reinsurance-investment strategy under the mean-variance criterion. The claim process described by a generalized compound dynamic contagion process introduced by [18] which allows for self-exciting and externally-exciting clustering effect for the claim arrivals and the processes of the risky assets are described by the jump-diffusion models. Based on practical considerations, we suppose that the externally-exciting clustering effect will simultaneously affect both the price of risky assets and the intensity of claims. To overcome the inconsistency issue caused by the mean-variance criterion, we formulate the optimization problem as an embedded game and solve it via a corresponding extended HamiltonJacobi-Bellman equation. The equilibrium reinsurance-investment strategy is obtained, which depends on a solution to an ordinary differential equation. In addition, we demonstrate the derived equilibrium strategy and the economic implications behind it through a large number of mathematical analysis and numerical examples.