On minimizing the ruin probability by investment and reinsurance

Abstract

We consider a classical risk model and allow investment into a risky asset modelled as a Black--Scholes model as well as (proportional) reinsurance. Via the Hamilton--Jacobi--Bellman approach we find a candidate for the optimal strategy and develop a numerical procedure to solve the HJB equation. We prove a verification theorem in order to show that any increasing solution to the HJB equation is bounded and solves the optimisation problem. We prove that an increasing solution to the HJB equation exists. Finally two numerical examples are discussed.