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On Optimal Dividend Strategies In The Compound Poisson Model

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  • Hans Gerber
  • Elias Shiu

Abstract

The optimal dividend problem goes back to a paper that Bruno De Finetti presented to the International Congress of Actuaries in New York (1957). For a stock company that pays dividends to its shareholders, what is the strategy that maximizes the expectation of the discounted dividends (until possible ruin)? Jeanblanc-Picqué and Shiryaev (1995) and Asmussen and Taksar (1997) solved the problem in the Brownian motion model, when a ceiling is imposed for the dividend rate. Here we study the problem with the Brownian motion generalized to a compound Poisson process. In particular, we derive a rule for deciding between plowback and dividend payout, which is a key issue in corporate finance.

Suggested Citation

  • Hans Gerber & Elias Shiu, 2006. "On Optimal Dividend Strategies In The Compound Poisson Model," North American Actuarial Journal, Taylor & Francis Journals, vol. 10(2), pages 76-93.
    • Handle: RePEc:taf:uaajxx:v:10:y:2006:i:2:p:76-93
    DOI: 10.1080/10920277.2006.10596249
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