Equilibrium Strategies for Singular Dividend Control Problems under the Mean-Variance Criterion

Jingyi Cao, Dongchen Li, Virginia R. Young and Bin Zou

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Abstract: We revisit the optimal dividend problem of de Finetti by adding a variance term to the usual criterion of maximizing the expected discounted dividends paid until ruin, in a singular control framework. Investors do not like variability in their dividend distribution, and the mean-variance (MV) criterion balances the desire for large expected dividend payments with small variability in those payments. The resulting MV singular dividend control problem is time-inconsistent, and we follow a game-theoretic approach to find a time-consistent equilibrium strategy. Our main contribution is a new verification theorem for the novel dividend problem, in which the MV criterion is applied to an integral of the control until ruin, a random time that is endogenous to the problem. We demonstrate the use of the verification theorem in two cases for which we obtain the equilibrium dividend strategy (semi-)explicitly, and we provide a numerical example to illustrate our results.

Date: 2025-11
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