Interplay between dividend rate and business constraints for a financial corporation

DOI10.1214/105051604000000909zbMATH Open1084.91048arXivmath/0503541OpenAlexW2013479352MaRDI QIDQ1769413FDOQ1769413

Authors: Xianqiang Yang 

Publication date: 21 March 2005

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: 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.

Full work available at URL: https://arxiv.org/abs/math/0503541

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zbMATH Keywords

HJB equationoptimal stochastic controlrisk controlDiffusion modelbusiness constraintsdividend distribution

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Applications of stochastic analysis (to PDEs, etc.) (60H30) Stochastic models in economics (91B70) Optimal stochastic control (93E20)

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Cited In (6)

• Title not available (Why is that?)
• De Finetti's control problem with a concave bound on the control rate
• Optimal dividend and capital structure with debt covenants
• Dividend optimization for jump-diffusion model with solvency constraints
• Optimal dividend and proportional reinsurance strategy under standard deviation premium principle
• Optimal control of a big financial company with debt liability under bankrupt probability constraints

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