Research projects

Project CEMAPRE internal

TitleOptimal Reinsurance of Dependent Risks
ParticipantsMaria de Lourdes Centeno, Manuel Guerra, Alexandra Moura (Principal Investigator), Carlos Oliveira
SummaryThis work focuses on the optimal reinsurance of dependent risks, from the point of view of the first
insurer. While a large quantity of studies can be found in literature concerning optimal reinsurance
strategies, only recently dependence has been considered and very few works can be found on the
optimal reinsurance of dependent risks through the claim severity, specially if premium loadings
other than the expected value principle are considered. The interest in studying optimal reinsurance
under dependencies is increasing, driven by the need for real, robust and reliable quantitative risk
The aim of the project is twofold: i) (continuation of the 2018 internal project) to study the
optimal levels of risk transfer for an insurance company willing to reinsure two dependent risks,
considering dependence through the copula framework; ii) to grapple the optimal reinsurance problem
using optimal control of discrete dynamical processes. Many authors consider continuous dynamical
processes, namely continuous diffusion processes, when describing the optimal reinsurance problem.
In particular, they assume that reinsurance can be bought and sold at any time instante. However, in
practical context, reinsurance contracts are valid for a fixed period of time (usually one year), so
in this work discrete dynamical processes will be considered.
We will account for reinsurance premium loadings including the expected value principle, but also
variance related premium loadings.
The complexity introduced in the optimization problem by the dependencies leads to the need of
numerical methods in most situations. We will consider both numerical and analytical approaches.