Deep learning solution of optimal reinsurance-investment strategies with
extra information and multiple risks
Abstract
This paper investigates an optimal investment-reinsurance problem for an
insurer who possesses extra information regarding the future
realizations of the claim process and risky asset process. The insurer
sells insurance contracts, has access to proportional reinsurance
business, and invests in a financial market consisting of three assets:
one risk-free asset, one bond and one stock. Here, the nominal interest
rate is characterized by the Vasicek model; and the stock price is
driven by the Heston’s stochastic volatility model. Applying the
enlargement of filtration techniques, we establish the optimal control
problem in which an insurer maximizes the expected power utility of the
terminal wealth. By using the dynamic programming principle, the problem
can be changed to four-dimensional Hamilton-Jacobi-Bellman equation. In
addition, we adopt a deep neural network method by which the partial
differential equation is converted to two backward stochastic
differential equations and solved by a stochastic gradient descent-type
optimization procedure. Numerical results obtained using TensorFlow in
Python and the economic behavior of the approximate optimal strategy and
the approximate optimal utility of the insurer are analyzed.