A multidimensional problem of optimal dividends with irreversible switching: a convergent numerical scheme

DOI10.1007/S00245-019-09602-0zbMATH Open1468.49027arXiv1804.02547OpenAlexW2969463773WikidataQ127333830 ScholiaQ127333830MaRDI QIDQ2041014FDOQ2041014

Authors: Pablo Azcue, Nora Muler 

Publication date: 15 July 2021

Published in: Applied Mathematics and Optimization (Search for Journal in Brave)

Abstract: In this paper we study the problem of optimal dividend payment strategy which maximizes the expected discounted sum of dividends to a multidimensional set up of n associated insurance companies where the surplus process follows an n-dimensional compound Poisson process. The general manager of the companies has the possibility at any time to exercise an irreversible switch into another regime; we also take into account an expected discounted value at ruin. This multidimensional dividend problem is a mixed singular control/optimal problem. We prove that the optimal value function is a viscosity solution of the associated HJB equation and that it can be characterized as the smallest viscosity supersolution. The main contribution of the paper is to provide a numerical method to approximate (locally uniformly) the optimal value function by an increasing sequence of sub-optimal value functions of admissible strategies defined in an n-dimensional grid. As a numerical example, we present the optimal time of merger for two insurance companies.

Full work available at URL: https://arxiv.org/abs/1804.02547

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zbMATH Keywords

Hamilton-Jacobi-Bellman equationviscosity solutionsoptimal switchingmultidimensional compound Poisson processconvergence of numerical schemeoptimal dividendsmixed singular/switching control problem

Mathematics Subject Classification ID

Macroeconomic theory (monetary models, models of taxation) (91B64) Hamilton-Jacobi equations (35F21) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Hamilton-Jacobi equations in optimal control and differential games (49L12)

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Cited In (2)

• Optimal dividend strategies for a catastrophe insurer
• Optimal dividend payments for a two-dimensional insurance risk process

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