Minimizing the penalized goal-reaching probability with multiple dependent risks

Abstract

We consider a robust optimal investment and reinsurance problem with multiple dependent risks for an Ambiguity-Averse Insurer (AAI), who wishes to minimize the probability that the value of the wealth process reaches a low barrier before a high goal. We assume that the insurer can purchase per-loss reinsurance for every class of insurance business and invest its surplus in a risk-free asset and a risky asset. Using the technique of stochastic control theory and solving the associated Hamilton-Jacobi-Bellman (HJB) equation, we derive the robust optimal investment-reinsurance strategy and the associated value function. We conclude that the robust optimal investment-reinsurance strategy coincides with the one without model ambiguity, but the value function differs. We also illustrate our results by numerical examples.