Optimal Dividend Payment in De Finetti Models: Survey and New Results and Strategies

Christian Hipp
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Christian Hipp: Karlsruhe Institute of Technology, D-51465 Bergisch Gladbach, Germany

Risks, 2020, vol. 8, issue 3, 1-27

Abstract: We consider optimal dividend payment under the constraint that the with-dividend ruin probability does not exceed a given value α . This is done in most simple discrete De Finetti models. We characterize the value function V ( s , α ) for initial surplus s of this problem, characterize the corresponding optimal dividend strategies, and present an algorithm for its computation. In an earlier solution to this problem, a Hamilton-Jacobi-Bellman equation for V ( s , α ) can be found which leads to its representation as the limit of a monotone iteration scheme. However, this scheme is too complex for numerical computations. Here, we introduce the class of two-barrier dividend strategies with the following property: when dividends are paid above a barrier B , i.e., a dividend of size 1 is paid when reaching B + 1 from B , then we repeat this dividend payment until reaching a limit L for some 0 ≤ L ≤ B . For these strategies we obtain explicit formulas for ruin probabilities and present values of dividend payments, as well as simplifications of the above iteration scheme. The results of numerical experiments show that the values V ( s , α ) obtained in earlier work can be improved, they are suboptimal.

Keywords: stochastic control; optimal dividend payment; ruin probability constraint, De Finetti model (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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