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On the optimal dividend problem for a spectrally negative L\'{e}vy process

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  • Florin Avram
  • Zbigniew Palmowski
  • Martijn R. Pistorius

Abstract

In this paper we consider the optimal dividend problem for an insurance company whose risk process evolves as a spectrally negative L\'{e}vy process in the absence of dividend payments. The classical dividend problem for an insurance company consists in finding a dividend payment policy that maximizes the total expected discounted dividends. Related is the problem where we impose the restriction that ruin be prevented: the beneficiaries of the dividends must then keep the insurance company solvent by bail-out loans. Drawing on the fluctuation theory of spectrally negative L\'{e}vy processes we give an explicit analytical description of the optimal strategy in the set of barrier strategies and the corresponding value function, for either of the problems. Subsequently we investigate when the dividend policy that is optimal among all admissible ones takes the form of a barrier strategy.

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  • Florin Avram & Zbigniew Palmowski & Martijn R. Pistorius, 2007. "On the optimal dividend problem for a spectrally negative L\'{e}vy process," Papers math/0702893, arXiv.org.
    • Handle: RePEc:arx:papers:math/0702893
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    References listed on IDEAS

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    1. Pistorius, M. R., 2003. "On doubly reflected completely asymmetric Lévy processes," Stochastic Processes and their Applications, Elsevier, vol. 107(1), pages 131-143, September.
    2. Pablo Azcue & Nora Muler, 2005. "Optimal Reinsurance And Dividend Distribution Policies In The Cramér‐Lundberg Model," Mathematical Finance, Wiley Blackwell, vol. 15(2), pages 261-308, April.
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