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On a periodic dividend barrier strategy in the dual model with continuous monitoring of solvency

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  • Avanzi, Benjamin
  • Cheung, Eric C.K.
  • Wong, Bernard
  • Woo, Jae-Kyung
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    Abstract

    We consider the dual model, which is appropriate for modeling the surplus of companies with deterministic expenses and stochastic gains, such as pharmaceutical, petroleum or commission-based companies. Dividend strategies for this model that can be found in the literature include the barrier strategy (e.g., Avanzi et al., 2007) and the threshold strategy (e.g., Cheung, 2008), where dividend decisions are made continuously. While in practice the financial position of a company is typically monitored frequently, dividend decisions are only made periodically along with the publication of its books. In this paper, we introduce a dividend barrier strategy whereby dividend decisions are made only periodically, but still allow ruin to occur at any time (as soon as the surplus is exhausted). This is in contrast to Albrecher et al. (2011a), who introduced periodic dividend payments in the Cramér–Lundberg surplus model, albeit with periodic ruin opportunities as well.

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    Bibliographic Info

    Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

    Volume (Year): 52 (2013)
    Issue (Month): 1 ()
    Pages: 98-113

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    Handle: RePEc:eee:insuma:v:52:y:2013:i:1:p:98-113

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    Web page: http://www.elsevier.com/locate/inca/505554

    Related research

    Keywords: Dual model; Barrier strategy; Erlangization; Dividends; Ruin;

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    References

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    1. Erhan Bayraktar & Masahiko Egami, 2007. "Optimizing Venture Capital Investments in a Jump Diffusion Model," Papers math/0703823, arXiv.org, revised Jul 2007.
    2. Albrecher, Hansjörg & Badescu, Andrei & Landriault, David, 2008. "On the dual risk model with tax payments," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1086-1094, June.
    3. Avanzi, Benjamin & U. Gerber, Hans & S.W. Shiu, Elias, 2007. "Optimal dividends in the dual model," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 111-123, July.
    4. Mazza, Christian & Rulliere, Didier, 2004. "A link between wave governed random motions and ruin processes," Insurance: Mathematics and Economics, Elsevier, vol. 35(2), pages 205-222, October.
    5. Gerber, Hans U. & Smith, Nathaniel, 2008. "Optimal dividends with incomplete information in the dual model," Insurance: Mathematics and Economics, Elsevier, vol. 43(2), pages 227-233, October.
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    Cited by:
    1. Avanzi, Benjamin & Tu, Vincent & Wong, Bernard, 2014. "On optimal periodic dividend strategies in the dual model with diffusion," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 210-224.

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