OPTIMAL CAPITAL ALLOCATION FOR INDIVIDUAL RISK MODEL USING A MEAN-VARIANCE PRINCIPLE

Jiang, Yu; Zhang, Yiying2; Zhao, Peng1,3

2022-09-01

10.3934/jimo.2022172

Journal of Industrial and Management Optimization   Impact Factor & Quartile

1547-5816

1553-166X

In this article, we study the problem of optimal capital allocation for the individual risk model using the Mean-Variance principle with quadratic loss function when a total amount of initial capital is granted for allocation. The determination of the optimal capital allocation strategy proceeds in two phases. First, explicit formulas for the optimal allocations are presented based on the assumption that the claim occurrence indicators are independent of the claim severities when the allocated total capital is fixed. Second, an approximating algorithm is proposed to find out the optimal value of capital used for allocation through minimizing the mean-variance loss function. As a result, the exact allocation policy can be provided by following the first phase again. Numerical examples and applications are provided to illustrate the main results and some discussions on the effect of neglecting the dependence between the claim occurrence indicators and claim severities on the optimal allocations are also given to shed light on future research.

Capital allocation mean-variance individual risk model quadratic distance

SCI

English

Corresponding

Research and Innovation Plan for Postgraduates in Jiangsu Province[KYCX20_2326] ; National Natural Science Foundation of China["12101336","11871252"] ; National Natural Science Founda-tion of China[11871252]

Engineering ; Operations Research & Management Science ; Mathematics

Engineering, Multidisciplinary ; Operations Research & Management Science ; Mathematics, Interdisciplinary Applications

WOS:000859182800001

AMER INST MATHEMATICAL SCIENCES-AIMS

Web of Science

1.Jiangsu Normal Univ, Sch Math & Stat, Xuzhou 221116, Peoples R China
2.Southern Univ Sci & Technol, Dept Math, Shenzhen 518055, Peoples R China
3.Jiangsu Normal Univ, RIMS Jiangsu Prov Key Lab Educ Big Data Sci & Engn, Xuzhou 221116, Peoples R China

Jiang, Yu,Zhang, Yiying,Zhao, Peng. OPTIMAL CAPITAL ALLOCATION FOR INDIVIDUAL RISK MODEL USING A MEAN-VARIANCE PRINCIPLE[J]. Journal of Industrial and Management Optimization,2022.

Jiang, Yu,Zhang, Yiying,&Zhao, Peng.(2022).OPTIMAL CAPITAL ALLOCATION FOR INDIVIDUAL RISK MODEL USING A MEAN-VARIANCE PRINCIPLE.Journal of Industrial and Management Optimization.

Jiang, Yu,et al."OPTIMAL CAPITAL ALLOCATION FOR INDIVIDUAL RISK MODEL USING A MEAN-VARIANCE PRINCIPLE".Journal of Industrial and Management Optimization (2022).