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A Note on Realistic Dividends in Actuarial Surplus Models

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  • Benjamin Avanzi

    (School of Risk and Actuarial Studies, UNSW Australia Business School, UNSW Sydney, NSW 2052, Australia
    Département de Mathématiques et de Statistique, Université de Montréal, Montréal, QC H3T 1J4, Canada)

  • Vincent Tu

    (School of Risk and Actuarial Studies, UNSW Australia Business School, UNSW Sydney, NSW 2052, Australia)

  • Bernard Wong

    (School of Risk and Actuarial Studies, UNSW Australia Business School, UNSW Sydney, NSW 2052, Australia)

Abstract

Because of the profitable nature of risk businesses in the long term, de Finetti suggested that surplus models should allow for cash leakages, as otherwise the surplus would unrealistically grow (on average) to infinity. These leakages were interpreted as ‘dividends’. Subsequent literature on actuarial surplus models with dividend distribution has mainly focussed on dividend strategies that either maximise the expected present value of dividends until ruin or lead to a probability of ruin that is less than one (see Albrecher and Thonhauser, Avanzi for reviews). An increasing number of papers are directly interested in modelling dividend policies that are consistent with actual practice in financial markets. In this short note, we review the corporate finance literature with the specific aim of fleshing out properties that dividend strategies should ideally satisfy, if one wants to model behaviour that is consistent with practice.

Suggested Citation

  • Benjamin Avanzi & Vincent Tu & Bernard Wong, 2016. "A Note on Realistic Dividends in Actuarial Surplus Models," Risks, MDPI, vol. 4(4), pages 1-9, October.
    • Handle: RePEc:gam:jrisks:v:4:y:2016:i:4:p:37-:d:80958
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    References listed on IDEAS

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    Cited by:

    1. Benjamin Avanzi & Hayden Lau & Bernard Wong, 2020. "On the optimality of joint periodic and extraordinary dividend strategies," Papers 2006.00717, arXiv.org, revised Dec 2020.
    2. Benjamin Avanzi & Hayden Lau & Bernard Wong, 2020. "Optimal periodic dividend strategies for spectrally negative L\'evy processes with fixed transaction costs," Papers 2004.01838, arXiv.org, revised Dec 2020.
    3. Hansjoerg Albrecher & Pablo Azcue & Nora Muler, 2020. "Optimal ratcheting of dividends in a Brownian risk model," Papers 2012.10632, arXiv.org.
    4. Benjamin Avanzi & Debbie Kusch Falden & Mogens Steffensen, 2022. "Stable Dividends under Linear-Quadratic Optimization," Papers 2210.03494, arXiv.org.
    5. Avanzi, Benjamin & Lau, Hayden & Wong, Bernard, 2021. "On the optimality of joint periodic and extraordinary dividend strategies," European Journal of Operational Research, Elsevier, vol. 295(3), pages 1189-1210.
    6. Hansjoerg Albrecher & Pablo Azcue & Nora Muler, 2019. "Optimal ratcheting of dividends in insurance," Papers 1910.06910, arXiv.org, revised Jun 2021.
    7. Avanzi, Benjamin & Tu, Vincent & Wong, Bernard, 2018. "Optimal dividends under Erlang(2) inter-dividend decision times," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 225-242.
    8. Avanzi, Benjamin & Pérez, José-Luis & Wong, Bernard & Yamazaki, Kazutoshi, 2017. "On optimal joint reflective and refractive dividend strategies in spectrally positive Lévy models," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 148-162.

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