CDF Formulation for Solving an Optimal Reinsurance Problem

Weng, C., Zhuang, S.C., 2016. CDF Formulation for solving an optimal reinsurance problem. Scandinavian Actuarial Journal

30 Pages Posted: 6 Feb 2017

See all articles by Chengguo Weng

Chengguo Weng

University of Waterloo

Sheng Chao Zhuang

University of Nebraska Lincoln

Date Written: April 24, 2014

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.

Keywords: CDF formulation, Lagrangian dual method, optimal reinsurance, survival probability maximization, background risk, generalized Wang’s premium principle

Suggested Citation

Weng, Chengguo and Zhuang, Sheng Chao, CDF Formulation for Solving an Optimal Reinsurance Problem (April 24, 2014). Weng, C., Zhuang, S.C., 2016. CDF Formulation for solving an optimal reinsurance problem. Scandinavian Actuarial Journal, Available at SSRN: https://ssrn.com/abstract=2428806

Chengguo Weng (Contact Author)

University of Waterloo ( email )

M3-200 Univ Ave W
Waterloo, Ontario N2L3G1
Canada
(1)888-4567 ext.31132 (Phone)

Sheng Chao Zhuang

University of Nebraska Lincoln ( email )

Lincoln, NE 68588
United States
4024722330 (Phone)

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