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Dividend corridors and a ruin constraint

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  • Albrecher, Hansjörg
  • Garcia Flores, Brandon
  • Hipp, Christian

Abstract

We propose a new class of dividend payment strategies for which one can easily control an infinite-time-horizon ruin probability constraint for an insurance company. When the risk process evolves as a spectrally negative Lévy process, we investigate analytical properties of these strategies and propose two numerical methods for finding explicit expressions for the optimal parameters. Numerical experiments show that the performance of these strategies is outstanding and, in some cases, even comparable to the overall-unconstrained optimal dividend strategy to maximize expected aggregate discounted dividend payments, despite the ruin constraint.

Suggested Citation

  • Albrecher, Hansjörg & Garcia Flores, Brandon & Hipp, Christian, 2025. "Dividend corridors and a ruin constraint," Insurance: Mathematics and Economics, Elsevier, vol. 121(C), pages 1-25.
    • Handle: RePEc:eee:insuma:v:121:y:2025:i:c:p:1-25
    DOI: 10.1016/j.insmatheco.2024.11.010
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    References listed on IDEAS

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    1. Hansjörg Albrecher & Jürgen Hartinger, 2007. "A Risk Model with Multilayer Dividend Strategy," North American Actuarial Journal, Taylor & Francis Journals, vol. 11(2), pages 43-64.
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    3. Hernández, Camilo & Junca, Mauricio & Moreno-Franco, Harold, 2018. "A time of ruin constrained optimal dividend problem for spectrally one-sided Lévy processes," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 57-68.
    4. Peter Grandits, 2015. "An optimal consumption problem in finite time with a constraint on the ruin probability," Finance and Stochastics, Springer, vol. 19(4), pages 791-847, October.
    5. Benjamin Avanzi, 2009. "Strategies for Dividend Distribution: A Review," North American Actuarial Journal, Taylor & Francis Journals, vol. 13(2), pages 217-251.
    6. Hansjörg Albrecher & Brandon Garcia Flores, 2023. "Optimal dividend bands revisited: a gradient-based method and evolutionary algorithms," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2023(8), pages 788-810, September.
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    17. F. Avram & Z. Palmowski & M. R. Pistorius, 2011. "On Gerber-Shiu functions and optimal dividend distribution for a L\'{e}vy risk process in the presence of a penalty function," Papers 1110.4965, arXiv.org, revised Jun 2015.
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