The Impact of Negative Interest Rates on Optimal Capital Injections
In the present paper, we investigate the optimal capital injection behaviour of an insurance company if the interest rate is allowed to become negative. The surplus process of the considered insurance entity is assumed to follow a Brownian motion with drift. The changes in the interest rate are described via a Markov-switching process. It turns out that in times with a positive rate, it is optimal to inject capital only if the company becomes insolvent. However, if the rate is negative it might be optimal to hold a strictly positive reserve. We establish an algorithm for finding the value function and the optimal strategy, which is proved to be of barrier type. Using the iteration argument, we show that the value function solves the Hamilton--Jacobi--Bellman equation, corresponding to the problem.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
A Study on Impact of Capital Structure on Profitability of Companies Listed in Indian Stock Exchange with respect to Automobile Industry
Current research helps in understanding both positive and negative impacts of capital structure on profits of Indian automobile companies by using variables like Return on Capital Employed, Return on Long Term Funds, Ret…
Cost of Implementation of Basel III reforms in Bangladesh -- A Panel data analysis
Inspired by the recent debate on the macroeconomic implications of the new bank regulatory standards known as Basel III, we tried to find out in this study that the impact of Basel III liquidity and capital requirements …
Emerging countries' counter-currency cycles in the face of crises and dominant currencies
This article examines how emerging economies use countercyclical monetary policies to manage economic crises and fluctuations in dominant currencies, such as the US dollar and the euro. Global economic cycles are marked …
Exploring the Determinants of Capital Adequacy in Commercial Banks: A Study of Bangladesh's Banking Sector
This study investigates the factors that influence the capital adequacy of commercial banks in Bangladesh using panel data from 28 banks over the period of 2013-2019. Three analytical methods, including the Fixed Effect …
Performance attribution with respect to interest rates, FX, carry, and residual market risks
We develop a method to decompose the PnL of a portfolio of assets into four parts: (a) PnL due to FX rate changes, (b) PnL due to interest rate changes, (c) carry gain due to time passing, (d) PnL due to residual market …
Position