EconPapers    
Economics at your fingertips  
 

Optimal dividend policies with random profitability

H. Mete Soner, Max Reppen and Jean Rochet

No 18-886, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flow drifts, including Ornstein–Uhlenbeck and CIR processes, are considered. We provide rigorous proofs of continuity of the value function, whence dynamic programming, as well as uniqueness of the solution to the Hamilton–Jacobi–Bellman equation, and study its qualitative properties both analytically and numerically. The value function is thus given by a nonlinear PDE with a gradient constraint from below in one dimension. We find that the optimal strategy is both a barrier and a band strategy and that it includes voluntary liquidation in parts of the state space. Finally, we present and numerically study extensions of the model, including equity issuance and gambling for resurrection.

Date: 2018-01
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.tse-fr.eu/sites/default/files/TSE/docu ... /2018/wp_tse_886.pdf Full text (application/pdf)

Related works:
Journal Article: Optimal dividend policies with random profitability (2020) Downloads
Working Paper: Optimal dividend policies with random profitability (2020) Downloads
Working Paper: Optimal dividend policies with random profitability (2018) Downloads
Working Paper: Optimal dividend policies with random profitability (2018) Downloads
Working Paper: Optimal Dividend Policies with Random Profitability (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:32401

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-22
Handle: RePEc:tse:wpaper:32401