Acta mathematica scientia,Series B ›› 2011, Vol. 31 ›› Issue (3): 1051-1061.doi: 10.1016/S0252-9602(11)60297-X

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MARKOV-MODULATED MEAN-VARIANCE PROBLEM FOR AN INSURER

 WANG Wei, BI Jun-Na   

  1. School of Mathematical Sciences and LPMC, Nankai University, Tianjin 300071, China
  • Received:2009-01-09 Revised:2010-03-13 Online:2011-05-20 Published:2011-05-20
  • Supported by:

    This work was supported by National Basic Research Program of China (973 Program) (2007CB814905), the National Natural Science Foundation of China (10871102) and the the Research Fund for the Doctorial Program of Higher Education. 

Abstract:

In this paper, we consider an insurance company which has the option of investing in a risky asset and a risk-free asset, whose price parameters are driven by a finite state Markov chain. The risk process of the insurance company is modeled as a diffusion process whose diffusion and drift parameters switch over time according to the same Markov chain. We study the Markov-modulated mean-variance problem for the insurer and derive explicitly the closed form of the efficient strategy and efficient frontier. In the case of no regime switching, we can see that the efficient frontier in our paper coincides with that of [10] when there is no pure jump.

Key words: Markov chain, mean-variance, efficient strategy, efficient frontier, Lagrange multiplier

CLC Number: 

  • 60J60
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