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On the dual risk model with Parisian implementation delays in dividend payments

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  • Cheung, Eric C.K.
  • Wong, Jeff T.Y.

Abstract

In this paper, we study the dual compound Poisson risk process, which is suitable for a business that pays expenses at a constant rate over time and earns random amount of income at random times. In contrast to the usual dividend barrier strategy (e.g. Avanzi, Gerber, and Shiu (2007)) in which any overshoot over a pre-specified barrier is paid immediately to the company’s shareholders as a dividend, it is assumed that dividend is payable only when the process has stayed above the barrier continuously for a certain amount of time d (known as the ‘Parisian implementation delay’ in Dassios and Wu (2009)). Under such a modification, the Laplace transform of the time of ruin and the expected discounted dividends paid until ruin are derived. Motivated by the ‘Erlangization’ technique (e.g. Asmussen, Avram, and Usabel (2002)) of approximating a fixed time using an Erlang distribution, we also analyze the case where the delay d is replaced by an Erlang random variable. Numerical illustrations are given to study the effect of Parisian implementation delays on ruin-related quantities and to demonstrate the good performance of Erlangization. Interestingly, unlike the traditional barrier strategy, it is found that the optimal dividend barrier maximizing the expected discounted dividends does depend on the initial surplus level.

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  • Cheung, Eric C.K. & Wong, Jeff T.Y., 2017. "On the dual risk model with Parisian implementation delays in dividend payments," European Journal of Operational Research, Elsevier, vol. 257(1), pages 159-173.
    • Handle: RePEc:eee:ejores:v:257:y:2017:i:1:p:159-173
    DOI: 10.1016/j.ejor.2016.09.018
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    4. Benjamin Avanzi & Hayden Lau & Bernard Wong, 2020. "Optimal periodic dividend strategies for spectrally positive L\'evy risk processes with fixed transaction costs," Papers 2003.13275, arXiv.org, revised May 2020.
    5. Aili Zhang & Ping Chen & Shuanming Li & Wenyuan Wang, 2020. "Risk Modelling on Liquidations with L\'{e}vy Processes," Papers 2007.01426, arXiv.org.
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    7. Wenyuan Wang & Xiang Yu & Xiaowen Zhou, 2021. "On optimality of barrier dividend control under endogenous regime switching with application to Chapter 11 bankruptcy," Papers 2108.01800, arXiv.org, revised Nov 2023.
    8. 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.
    9. Boxma, Onno & Frostig, Esther, 2018. "The dual risk model with dividends taken at arrival," Insurance: Mathematics and Economics, Elsevier, vol. 83(C), pages 83-92.
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