Equity allocation and portfolio selection in insurance

A discrete time probabilistic model, for optimal equity allocation and port folio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), repres enting both liabilities and assets, it is proved that the model has solutio ns respecting constraints on ROEs, ruin probabilities and market shares cur rently in practical use. Solutions define global and optimal risk managemen t strategies of the company. Mathematical existence results and tools, such as the inversion of the linear part of the Euler-Lagrange equations, devel oped in a preceding paper in the context of a simplified model are essentia l for the mathematical and numerical construction of solutions of the model . (C) 2000 Elsevier Science B.V. All rights reserved.