Interplay between dividend rate and business constraints for a financial corporation
We study a model of a corporation which has the possibility to choose various production/business policies with different expected profits and risks. In the model there are restrictions on the dividend distribution rates as well as restrictions on the risk the company can undertake. The objective is to maximize the expected present value of the total dividend distributions. We outline the corresponding Hamilton-Jacobi-Bellman equation, compute explicitly the optimal return function and determine the optimal policy. As a consequence of these results, the way the dividend rate and business constraints affect the optimal policy is revealed. In particular, we show that under certain relationships between the constraints and the exogenous parameters of the random processes that govern the returns, some business activities might be redundant, that is, under the optimal policy they will never be used in any scenario.
|Date of creation:||Mar 2005|
|Date of revision:|
|Publication status:||Published in Annals of Applied Probability 2004, Vol. 14, No. 4, 1810-1837|
|Contact details of provider:|| Web page: http://arxiv.org/|
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- Paulsen, Jostein & Gjessing, Hakon K., 1997. "Optimal choice of dividend barriers for a risk process with stochastic return on investments," Insurance: Mathematics and Economics, Elsevier, vol. 20(3), pages 215-223, October.
- 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.
- Taksar, Michael I. & Zhou, Xun Yu, 1998. "Optimal risk and dividend control for a company with a debt liability," Insurance: Mathematics and Economics, Elsevier, vol. 22(1), pages 105-122, May.
- Hojgaard, Bjarne & Taksar, Michael, 1998. "Optimal proportional reinsurance policies for diffusion models with transaction costs," Insurance: Mathematics and Economics, Elsevier, vol. 22(1), pages 41-51, May.
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