Journal
ASIA-PACIFIC FINANCIAL MARKETS
Volume 21, Issue 4, Pages 317-330Publisher
SPRINGER
DOI: 10.1007/s10690-014-9187-6
Keywords
Asset-liability; Markov regime-switching; Linear-quadratic control; Jump-diffusion process
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Funding
- National Natural Science Foundation of China [11371020]
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This paper considers an asset-liability management problem under a continuous timeMarkov regime-switching jump-diffusion market. We assume that the risky stock's price is governed by a Markov regime-switching jump-diffusion process and the insurance claims follow a Markov regime-switching compound poisson process. Using the Markowitz mean-variance criterion, the objective is to minimize the variance of the insurer's terminal wealth, given an expected terminal wealth. We get the optimal investment policy. At the same time, we also derive the mean-variance efficient frontier by using the Lagrange multiplier method and stochastic linear-quadratic control technique.
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