Robust Optimal Consumption, Investment and Reinsurance for Recursive Preferences

Battle Count: 69

While primarily focused on insurance risk management, the paper has significant relevance to quantitative trading through its treatment of robust portfolio optimization under model uncertainty, Epstein-Zin preferences (widely used in asset pricing), and the FBSDE methodology for stochastic control. The investment strategy derivation and the analysis of how risk aversion, EIS, and ambiguity aversion affect portfolio allocation are directly applicable to robust trading strategies. However, the insurance-specific components (reinsurance, Cramér-Lundberg surplus) limit direct applicability to pure trading contexts.

High complexity due to: (1) solving coupled FBSDEs with non-Lipschitz generators, (2) applying Itô's formula in multi-dimensional settings with correlated Brownian motions, (3) implementing the martingale optimality principle with sub/super-martingale verification, (4) handling the Girsanov change of measure for the worst-case distortion, (5) ensuring admissibility conditions (class D property, positivity constraints). The closed-form solutions simplify implementation once derived, but the theoretical machinery is substantial. Numerical implementation requires careful handling of exponential processes and Doléans-Dade exponentials.

The paper provides closed-form analytical solutions and a complete parameter table (Table 1) for numerical experiments. All mathematical derivations are included with proofs in appendices. However, no code repository or computational scripts are provided. The numerical simulations (Figures 1-4) can be reproduced from the explicit formulas given in Theorem 3.5 and Proposition 3.1, but require implementing the FBSDE solution and plotting routines.