Please use this identifier to cite or link to this item: 
Year of Publication: 
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 682
Bielefeld University, Center for Mathematical Economics (IMW), Bielefeld
We propose a model in which, in exchange to the payment of a fixed transaction cost, an insurance company can choose the retention level as well as the time at which subscribing a perpetual reinsurance contract. The surplus process of the insurance company evolves according to the diffusive approximation of the Cramér-Lundberg model, claims arrive at a fixed constant rate, and the distribution of their sizes is general. Furthermore, we do not specify any specific functional form of the retention level. The aim of the company is to take actions in order to minimize the sum of the expected value of the total discounted flow of capital injections needed to avoid bankruptcy and of the fixed activation cost of the reinsurance contract. We provide an explicit solution to this problem, which involves the resolution of a static nonlinear optimization problem and of an optimal stopping problem for a reflected diffusion. We then illustrate the theoretical results in the case of proportional and excess-of-loss reinsurance, by providing a numerical study of the dependency of the optimal solution with respect to the model's parameters.
fixed cost
capital injections
diffusive risk model
optimal stopping
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.