Optimal Investing Strategies for Participating Contracts
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Date
2017-03
Authors
Lin, Hongcan
Saunders, David
Weng, Chengguo
Advisor
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
Participating contracts are popular insurance policies, in which the payoff to a policyholder is linked to the performance of a portfolio managed by the insurer. We consider the portfolio selection problem of an insurer that offers participating contracts and has an S-shaped utility function. Applying the martingale approach, closed-form solutions are obtained. The resulting optimal strategies are compared with portfolio insurance hedging strategies (CPPI and OBPI). We also study numerical solutions of the portfolio selection problem with constraints on the portfolio weights.
Description
The final publication is available at Elsevier via https://doi.org/10.1016/j.insmatheco.2017.02.001. © 2017. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Keywords
participating contract, utility maximization, martingale and dual approach, concavification technique, stochastic control