Optimal Dividend Strategy Under Parisian Ruin with Affine Penalty

Ran Xu (), Wenyuan Wang () and Jose Garrido ()
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Ran Xu: Xi’an Jiaotong–Liverpool University
Wenyuan Wang: Xiamen University
Jose Garrido: Concordia University

Methodology and Computing in Applied Probability, 2022, vol. 24, issue 3, 1385-1409

Abstract: Abstract In this paper, we investigate the optimal dividend problem under Parisian ruin with affine penalty payments at Parisian ruin time. The underlying risk process is assumed to be a spectrally negative Lévy risk process. With the help of the dynamic programming principle, we prove that the value function associated to our optimal control problem is the smallest solution with certain characteristics to the corresponding Hamilton–Jacobi–Bellman (HJB) equation. In addition, the form of the performance function under barrier dividend strategy is expressed in terms of various extended scale functions. Then we identify a condition under which the performance function under certain barrier strategy is also a solution to the HJB equation, which in turn illustrates the optimalilty of such barrier dividend strategy among all admissible strategies. Various numerical examples are also given when the underlying risk process is compound Poisson process, Brownian motion with drift and jump-diffusion process.

Keywords: Optimal dividend problem; Spectrally negative Lévy process; Parisian ruin; Affine penalty payments; 93E20; 60G51; 91Gxx (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11009-021-09865-7

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