Optimal dividends under a stochastic interest rate

Julia Eisenberg

Insurance: Mathematics and Economics, 2015, vol. 65, issue C, 259-266

Abstract: We consider an insurance entity endowed with an initial capital and an income, modelled as a Brownian motion with drift. The discounting factor is modelled as a stochastic process: at first as a geometric Brownian motion, then as an exponential function of an integrated Ornstein–Uhlenbeck process. It is assumed that the insurance company seeks to maximize the cumulated value of expected discounted dividends up to the ruin time. We find an explicit expression for the value function and for the optimal strategy in the first but not in the second case, where one has to switch to the viscosity ansatz.

Keywords: Optimal control; Hamilton–Jacobi–Bellman equation; Vasicek model; Geometric Brownian motion; Interest rate; Short rate; Dividends (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:65:y:2015:i:c:p:259-266

DOI: 10.1016/j.insmatheco.2015.10.007

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