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Mathematics and Financial Economics

, Volume 13, Issue 1, pp 147–172 | Cite as

Optimal credit investment and risk control for an insurer with regime-switching

  • Lijun BoEmail author
  • Huafu Liao
  • Yongjin Wang
Article
  • 130 Downloads

Abstract

This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under regime-switching risk. Default events have an impact on the distress state of the surviving stocks in the portfolio. The aim of the insurer is to maximize the expected utility of the terminal wealth by selecting optimal investment and risk control strategies. We characterize the optimal trading strategy of defaultable stocks and risk control for the insurer. By developing a truncation technique, we analyze the existence and uniqueness of global (classical) solutions to the recursive HJB system. We prove the verification theorem based on the (classical) solutions of the recursive HJB system.

Keywords

Optimal investment Default contagion Regime-switching Recursive dynamical system 

Mathematics Subject Classifications

3E20 60J20 

Notes

Acknowledgements

The authors gratefully acknowledge the constructive and insightful comments provided by one anonymous reviewer and Editor-in-Chief, Prof. Ulrich Horst, which helped to greatly improve the quality of the manuscript. This research of L. Bo and H. Liao was supported in part by the NSF of China under Grant 11471254, The Key Research Program of Frontier Sciences, CAS under Grant QYZDB-SSW-SYS009, and Fundamental Research Funds for Central Universities under Grant WK3470000008.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of Mathematical SciencesUniversity of Science and Technology of ChinaHefeiChina
  2. 2.Wu Wen Tsun Key Laboratory of MathematicsChinese Academy of ScienceHefeiChina
  3. 3.Business SchoolNankai UniversityTianjinChina

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