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On a mean reverting dividend strategy with Brownian motion

Author

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  • Avanzi, Benjamin
  • Wong, Bernard

Abstract

In actuarial risk theory, the introduction of dividend pay-outs in surplus models goes back to de Finetti (1957). Dividend strategies that can be found in the literature often yield pay-out patterns that are inconsistent with actual practice. One issue is the high variability of the dividend payment rates over time. We aim at addressing that problem by specifying a dividend strategy that yields stable dividend pay-outs over time.

Suggested Citation

  • Avanzi, Benjamin & Wong, Bernard, 2012. "On a mean reverting dividend strategy with Brownian motion," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 229-238.
  • Handle: RePEc:eee:insuma:v:51:y:2012:i:2:p:229-238
    DOI: 10.1016/j.insmatheco.2012.04.002
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    References listed on IDEAS

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    1. repec:wsi:wschap:9789812813527_0001 is not listed on IDEAS
    2. Asmussen, Soren & Taksar, Michael, 1997. "Controlled diffusion models for optimal dividend pay-out," Insurance: Mathematics and Economics, Elsevier, vol. 20(1), pages 1-15, June.
    3. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    4. Sheldon Lin, X., 1998. "Double barrier hitting time distributions with applications to exotic options," Insurance: Mathematics and Economics, Elsevier, vol. 23(1), pages 45-58, October.
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    More about this item

    Keywords

    Dividends; Brownian motion; Ornstein–Uhlenbeck process; Mean reverting;

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory

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