Optimal investment-reinsurance strategy in the correlated insurance and financial markets

<p style='text-indent:20px;'>Within the correlated insurance and financial markets, we consider the optimal reinsurance and asset allocation strategies. In this paper, the risk asset is assumed to follow a general continuous diffusion process driven by a Brownian motion, which correlates to the insurer's surplus process. We propose a novel approach to derive the optimal investment-reinsurance strategy and value function for an exponential utility function. To illustrate this, we show how to derive the explicit closed strategies and value functions when the risk asset is the CEV model, 3/2 model and Merton's IR model respectively.</p>

Modeling Financial System with Interbank Flows, Borrowing, and Investing

In our model, private actors with interbank cash flows similar to, but more general than that by Carmona et al. (2013) borrow from the non-banking financial sector at a certain interest rate, controlled by the central bank, and invest in risky assets. Each private actor aims to maximize its expected terminal logarithmic wealth. The central bank, in turn, aims to control the overall economy by means of an exponential utility function. We solve all stochastic optimal control problems explicitly. We are able to recreate occasions such as liquidity trap. We study distribution of the number of defaults (net worth of a private actor going below a certain threshold).

Risk Sensitive Probabilistic Planning with ILAO* and Exponential Utility Function

Markov Decision Process (MDP) has been used very efficiently to solve sequential decision-making problems. However, there are problems in which dealing with the risks of the environment to obtain a reliable result is more important than minimizing the total expected cost. MDPs that deal with this type of problem are called risk-sensitive Markov decision processes (RSMDP). In this paper we propose an efficient heuristic search algorithm that allows to obtain a solution by evaluating only the relevant states to reach the goal states starting from an initial state.

OPTIMAL INVESTMENT IN HEDGE FUNDS UNDER LOSS AVERSION

We study optimal investment problems in hedge funds for a loss averse manager under the framework of cumulative prospect theory. We obtain explicit solutions for a general utility function satisfying the Inada conditions and a piece-wise exponential utility function. Through a sensitivity analysis, we find that the manager reduces the risk of the hedge fund when her/his loss aversion, risk aversion, ownership in the fund, or management fee ratio increases. However, the increase of incentive fee ratio drives the manager to seek more risk in order to achieve higher prospect utility.

The Risk Averse Investor's Equilibrium Equity Premium in a Semi Martingale Market with Arbitrary Jumps

In this paper, we study the risk averse investor's equilibrium equity premium in a semi martingale market with arbitrary jumps. We realize that, if we normalize the market, the equilibrium equity premium is consistent to taking the risk free rate $\rho=0$ in martingale markets. We also observe that the value process affects both the diffusive and rare-event premia except for the CARA negative exponential utility function. The bond price always affect the diffusive risk premium for this risk averse investor.