Dividend optimization for regime-switching general diffusions

Jinxia Zhu and Feng Chen

Insurance: Mathematics and Economics, 2013, vol. 53, issue 2, 439-456

Abstract: We consider the optimal dividend distribution problem of a financial corporation whose surplus is modeled by a general diffusion process with both the drift and diffusion coefficients depending on the external economic regime as well as the surplus itself through general functions. The aim is to find a dividend payout scheme that maximizes the present value of the total dividends until ruin. We show that, depending on the configuration of the model parameters, there are two exclusive scenarios: (i)the optimal strategy uniquely exists and corresponds to paying out all surpluses in excess of a critical level (barrier) dependent on the economic regime and paying nothing when the surplus is below the critical level;(ii)there are no optimal strategies.

Keywords: Dividend; Dynamic programming principle; General diffusion; Optimization; Regime-switching; IM13; IE20; IB63 (search for similar items in EconPapers)
JEL-codes: C61 G22 G35 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:53:y:2013:i:2:p:439-456

DOI: 10.1016/j.insmatheco.2013.07.006

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