RISK-MINIMIZING PORTFOLIO SELECTION FOR INSURANCE PAYMENT PROCESSES UNDER A MARKOV-MODULATED MODEL

摘要

This paper extends the model in Riesner (2007) to a Markov modulated Levy process. The parameters of the Levy process switch over time according to the different states of an economy, which is described by a finite-state continuous time Markov chain. Employing the local risk minimization method, we find an optimal hedging strategy for a general payment process. Finally, we give an example for single unit-linked insurance contracts with guarantee to display the specific locally risk-minimizing hedging strategy.