Optimal financing and dividend control of the insurance company with proportional reinsurance policy

We consider the optimal control problem of the insurance company with proportional reinsurance policy. The management of the company controls the reinsurance rate, dividends payout as well as the equity issuance processes to maximize the expected present value of the dividends minus the equity issuance until the time of bankruptcy. This is the first time that the financing process in an insurance model has been considered, which is more realistic. To find the solution of the mixed singular-regular control problem, we firstly construct two categories of suboptimal models, one is the classical model without equity issuance, the other never goes bankrupt by equity issuance. Then we identify the value functions and the optimal strategies corresponding to the suboptimal models depending on the relationships between the coefficients. (c) 2007 Elsevier B.V. All rights reserved.