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      Optimal Dividend and reinsurance strategy of a Property Insurance Company under Catastrophe Risk

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          Abstract

          We consider an optimal control problem of a property insurance company with proportional reinsurance strategy. The insurance business brings in catastrophe risk, such as earthquake and flood. The catastrophe risk could be partly reduced by reinsurance. The management of the company controls the reinsurance rate and dividend payments process to maximize the expected present value of the dividends before bankruptcy. This is the first time to consider the catastrophe risk in property insurance model, which is more realistic. We establish the solution of the problem by the mixed singular-regular control of jump diffusions. We first derive the optimal retention ratio, the optimal dividend payments level, the optimal return function and the optimal control strategy of the property insurance company, then the impacts of the catastrophe risk and key model parameters on the optimal return function and the optimal control strategy of the company are discussed.

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          Controlled diffusion models for optimal dividend pay-out

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            Instantaneous Control of Brownian Motion

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              Risk vs. profit potential: A model for corporate strategy

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                Author and article information

                Journal
                07 September 2010
                Article
                1009.1269

                http://creativecommons.org/licenses/by/3.0/

                Custom metadata
                Primary 91B30, 91B70, 91B28, Secondary 60H10, 60H30
                22 pages, 8 figures
                q-fin.RM math.OC math.PR

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