Optimal dividends with partial information and stopping of a degenerate reflecting diffusion (Q2282963)

This study refers to the optimal dividend problem for a firm's manager who has partial information on the profitability of the firm. The problem is formulated as one of singular stochastic control with partial information on the drift of the underlying process and with absorption. In the Markovian formulation, one has a two-dimensional degenerate diffusion whose first component is singularly controlled; and the process is absorbed when its first component hits zero. The free boundary problem associated to the value function of the control problem is challenging from an analytical point of view due to the interplay of degeneracy and absorption. Yet, the value function of the dividend problem is a smooth solution of the free boundary problem and the author constructs an optimal dividend strategy.