Research On Investment Of Insurance Funds With Random Consumption

The opening and rapid development of financial industry promoted the progressof society, and played an important part in the national economic operation. Insuranceindustry makes a positive effect in social stability, public security and financing. Theinsurance industry in China has an average growth rate of38%per annum of thepremium income with its’ rapid development and people’s acceptance. Huge amountsof insurance funds need to be made good use of, or are rather a pity that in idle. Thereturn of investment can pay for clients, keep their credit, increase profits and improvecompetitiveness, so as to further expand business. How to maximize the return oninvestment and minimize the risk of investment portfolio is the main objective ofinvestors. It is strongly demanded that investors should know how to choose theportfolio, to weigh the benefits and risks, and in the face of randomness anduncertainty, how to select the optimal portfolio, so as to avoid the underlying risk andachieve a stable benefit by the greatest possible degree.This paper gives full consideration to the complexity and randomness of theinsurance investment market, applies modern portfolio theory model, optimalinvestment and consumption model and stochastic control theory to the insurancefunds investment field, and builds the optimal investment portfolio of insurance fundswith random consumption model for the first time, which also suggests a method ofoptimal portfolio and risk control with quantitative analysis for the investors.This paper assumes that the insurance company invests in one risk-free assetand n kinds of risk assets which follow the geometric Brownian motion. We builtthe optimal investment portfolio of insurance funds with random consumption model.By applying stochastic control theory and solving the corresponding HJB equation,we obtain the explicit optimal strategy for CARA utility and derive thecorresponding value function. Finally, we analyze the influence of related factorsto optimal strategy of the insurance company.