The equivalence of two tax processes

DOI10.1016/J.INSMATHECO.2019.10.002zbMATH Open1431.91242arXiv1811.01664OpenAlexW2899348061MaRDI QIDQ2292170FDOQ2292170

Authors: Dalal Al Ghanim, Ronnie Loeffen, Alexander R. Watson 

Publication date: 3 February 2020

Published in: Insurance Mathematics \& Economics (Search for Journal in Brave)

Abstract: We introduce two models of taxation, the latent and natural tax processes, which have both been used to represent loss-carry-forward taxation on the capital of an insurance company. In the natural tax process, the tax rate is a function of the current level of capital, whereas in the latent tax process, the tax rate is a function of the capital that would have resulted if no tax had been paid. Whereas up to now these two types of tax processes have been treated separately, we show that, in fact, they are essentially equivalent. This allows a unified treatment, translating results from one model to the other. Significantly, we solve the question of existence and uniqueness for the natural tax process, which is defined via an integral equation. Our results clarify the existing literature on processes with tax.

Full work available at URL: https://arxiv.org/abs/1811.01664

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zbMATH Keywords

optimal controlruin probabilityrisk process[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=spectrally+negative+L%EF%BF%BD%EF%BF%BDvy+process&go=Go spectrally negative L��vy process]tax ratetax identitytax process

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Actuarial mathematics (91G05) Macroeconomic theory (monetary models, models of taxation) (91B64) Optimal stochastic control (93E20)

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