OPEN-LOOP EQUILIBRIUM MEAN-VARIANCE REINSURANCE, NEW BUSINESS AND INVESTMENT STRATEGIES WITH CONSTRAINTS

In this paper, we study a general mean-variance reinsurance, new business and investment problem, where the claim processes of original and new businesses are modeled by two different risk processes and the safety loadings of reinsurance and new business are different. The retention level of the insurer is constrained in [0, 1] and the controls of new business and risky investment are required to be non-negative. This model relaxes the limitations of those in existing research. By using the projection onto the convex set controls valued in, we obtain an open-loop equilibrium reinsurance-new business-investment strategy explicitly. We also show that the obtained equilibrium strategy is the optimal one among all deterministic strategies in the sense that it yields the smallest mean-variance cost. In the case where original and new businesses are the same, the equilibrium strategy is given in closed-form and its sensitivities to safety loadings are shown by numerical examples. At last, by comparing with the case where acquiring new business is prohibited, we show that allowing writing new policies indeed improves the performance of the insurer’s risk management.