CDF formulation for solving an optimal reinsurance problem. Issue 5 (28th May 2017)

• Record Type: Journal Article
• Authors: Weng, Chengguo; Zhuang, Sheng Chao
• Is Part Of: Scandinavian actuarial journal. Volume 2017:Issue 5(2017)
• Page Start: 395
• Page End: 418
• Publication Date: 2017-05-28
• Subjects: CDF formulation -- Lagrangian dual method -- optimal reinsurance -- survival probability maximization -- background risk -- generalized Wang's premium principle; Insurance, Life -- Mathematics -- Periodicals; Insurance -- Mathematics -- Periodicals; 368.01
• DOI: 10.1080/03461238.2016.1167114
• Languages: English
• ISSNs: 0346-1238

Abstract

Abstract : An innovative cumulative distribution function (CDF)-based method is proposed for deriving optimal reinsurance contracts to maximize an insurer's survival probability. The optimal reinsurance model is a non-concave constrained stochastic maximization problem, and the CDF-based method transforms it into a functional concave programming problem of determining an optimal CDF over a corresponding feasible set. Compared to the existing literature, our proposed CDF formulation provides a more transparent derivation of the optimal solutions, and more interestingly, it enables us to study a further complex model with an extra background risk and more sophisticated premium principle.