Optimal payout policy in presence of downside risk

Luis Alvarez and Teppo Rakkolainen ()

Mathematical Methods of Operations Research, 2009, vol. 69, issue 1, 27-58

Abstract: We analyze the determination of a value maximizing dividend payout policy for a broad class of cash reserve processes modeled as spectrally negative jump diffusions. We extend previous results based on continuous diffusion models and characterize the value of the optimal dividend distribution strategy explicitly. We also characterize explicitly the values as well as the optimal dividend thresholds for a class of associated optimal liquidation and sequential lump sum dividend control problems. Our results indicate that both the value as well as the marginal value of the optimal policies are increasing functions of policy flexibility in the discontinuous setting as well. Copyright Springer-Verlag 2009

Keywords: Dividend optimization; Downside risk; Impulse control; Jump diffusion; Optimal stopping; Singular stochastic control; C61; G35 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00186-008-0228-7

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