Robust non-zero-sum investment and reinsurance game with default risk

Ning Wang, Nan Zhang, Zhuo Jin, Linyi Qian

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper investigates a non-zero-sum stochastic differential game between two competitive CARA insurers, who are concerned about the potential model ambiguity and aim to seek the robust optimal reinsurance and investment strategies. The ambiguity-averse insurers are allowed to purchase reinsurance treaty to mitigate individual claim risks; and can invest in a financial market consisting of one risk-free asset, one risky asset and one defaultable corporate bond. The objective of each insurer is to maximize the expected exponential utility of his terminal surplus relative to that of his competitor under the worst-case scenario of the alternative measures. Applying the techniques of stochastic dynamic programming, we derive the robust Nash equilibrium reinsurance and investment policies explicitly and present the corresponding verification theorem. Finally, we perform some numerical examples to illustrate the influence of model parameters on the equilibrium reinsurance and investment strategies and draw some economic interpretations from these results.
LanguageEnglish
Pages115-132
Number of pages18
JournalInsurance: Mathematics and Economics
Volume84
DOIs
Publication statusPublished - Jan 2019

Fingerprint

Insurer
Reinsurance
Default risk
Investment strategy
Assets
Stochastic differential games
Competitors
Financial markets
Nash equilibrium
Scenarios
Investment policy
Stochastic dynamic programming
Surplus
Optimal reinsurance
Exponential utility
Economics
Treaties
Purchase
Optimal investment
Corporate bonds

Keywords

  • Non-zero-sum stochastic differential game
  • Relative performance
  • Nash equilibrium
  • Model ambiguity
  • Default risk

Cite this

Wang, Ning ; Zhang, Nan ; Jin, Zhuo ; Qian, Linyi. / Robust non-zero-sum investment and reinsurance game with default risk. In: Insurance: Mathematics and Economics. 2019 ; Vol. 84. pp. 115-132.
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Robust non-zero-sum investment and reinsurance game with default risk. / Wang, Ning; Zhang, Nan; Jin, Zhuo; Qian, Linyi.

In: Insurance: Mathematics and Economics, Vol. 84, 01.2019, p. 115-132.

Research output: Contribution to journalArticleResearchpeer-review

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