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Optimal dividend policies for a class of growth-restricted di usion processes under transaction costs and solvency constraints

Bai, Lihua; Hunting, Martin; Paulsen, Jostein
Peer reviewed, Journal article
Accepted version
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URI
https://hdl.handle.net/1956/6226
Date
2012
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  • Department of Mathematics [651]
Original version
https://doi.org/10.1007/s00780-011-0169-5
Abstract
In this paper, we consider a company where surplus follows a rather general di usion process and whose objective is to maximize expected discounted dividend payments. With each dividend payment there are transaction costs and taxes and it is shown in [7] that under some reasonable assumptions, optimality is achieved by using a lump sum dividend barrier strategy, i.e. there is an upper barrier u and a lower barrier u so that whenever surplus reaches u , it is reduced to u through a dividend payment. However, these optimal barriers may be unacceptably low from a solvency point of view. It is argued that in that case one should still we should look for a barrier strategy, but with barriers that satisfy a given constraint. We propose a solvency constraint similar to that in [6]; whenever dividends are paid out the probability of ruin within a xed time T and with the same strategy in the future, should not exceed a predetermined level ". It is shown how optimality can be achieved under this constraint, and numerical examples are given.
Publisher
Springer Verlag
Copyright
Copyright the authors. All rights reserved

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