An optimal trading strategy for participating policies

An optimal trading strategy for participating policies

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Article ID: iaor20031938
Country: Japan
Volume: 45
Issue: 4
Start Page Number: 471
End Page Number: 489
Publication Date: Dec 2002
Journal: Journal of the Operations Research Society of Japan
Authors:
Keywords: allocation: resources, control, financial, management, risk, optimization
Abstract:

I consider a participating policy as a contingent claim whose payoff is similar to a call option. The underlying asset of the claim is an asset portfolio continuously controlled by an insurance company. I derive an efficient frontier of the equity return of the company, as well as the trading strategy to realize efficient portfolios, by utilizing the martingale method for optimal portfolio selection problems. Some numerical examples indicate that the higher expected rate of return of the company is required, the more investment in risky assets is needed, and that probability of bonus payment is positive.

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