An insurance and investment portfolio model using chance constrained programming

• Published in: Omega (Oxford) Vol. 23; no. 5; pp. 577 - 585
• Main Author: Li, S.X.
• Format: Journal Article
• Language: English
• Published: Exeter Elsevier Ltd 01.10.1995; Elsevier; Pergamon Press; Pergamon Press Inc
• Series: Omega
• Subjects: Applied sciences; chance constrained programming; Economic models; Exact sciences and technology; Insurance; Investments; Management science; Mathematical programming; modeling; modeling optimization portfolio analysis chance constrained programming; Operational research and scientific management; Operational research. Management science; optimization; portfolio analysis; Portfolio management; Portfolio theory; Property liability insurance; Studies; portfolio analysis; modeling; optimization; chance constrained programming; Stresses; Insurance; Finance; Empirical method; Portfolio management; Modeling; Optimization; Investment; Mathematical programming
• ISSN: 0305-0483; 1873-5274
• DOI: 10.1016/0305-0483(95)00019-K

An insurance and investment portfolio model is here formulated in terms of the ‘P-Models’ of Chance Constrained Programming, which is then related to the ‘satisficing concepts’ of Simon. For a given insurers' aspiration level of return on equity and risk levels of violating minimum requirements on return and on cash and liquid assets, we propose a method to maximize the insurers' probability of achieving their aspiration level, subject to two chance constraints and other regulatory and institutional constraints. An empirical example is given, based on the industry's aggregated data for a twenty year period.