Numerical solutions of optimal risk control and dividend optimization policies under a generalized singular control formulation

DOI10.1016/J.AUTOMATICA.2012.05.039zbMATH Open1267.93184arXiv1111.2584OpenAlexW2015115811MaRDI QIDQ2391436FDOQ2391436

Authors: Zhuo Jin, Chao Zhu, G. Yin 

Publication date: 31 July 2013

Published in: Automatica (Search for Journal in Brave)

Abstract: This paper develops numerical methods for finding optimal dividend pay-out and reinsurance policies. A generalized singular control formulation of surplus and discounted payoff function are introduced, where the surplus is modeled by a regime-switching process subject to both regular and singular controls. To approximate the value function and optimal controls, Markov chain approximation techniques are used to construct a discrete-time controlled Markov chain with two components. The proofs of the convergence of the approximation sequence to the surplus process and the value function are given. Examples of proportional and excess-of-loss reinsurance are presented to illustrate the applicability of the numerical methods.

Full work available at URL: https://arxiv.org/abs/1111.2584

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zbMATH Keywords

regime switchingnumerical methodreinsurancesingular controlMarkov chain approximationdividend policy

Mathematics Subject Classification ID

Markov chains (discrete-time Markov processes on discrete state spaces) (60J10) Portfolio theory (91G10) Optimal stochastic control (93E20)

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• Numerical solutions of optimal stopping problems for a class of hybrid stochastic systems
• Linearisation techniques and the dual algorithm for a class of mixed singular/continuous control problems in reinsurance. II: Numerical aspects
• A survey of numerical solutions for stochastic control problems: some recent progress
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• A singular stochastic control problem with direction switching cost
• Optimal dividend and capital structure with debt covenants
• Lookback option pricing for regime-switching jump diffusion models
• A hybrid deep learning method for optimal insurance strategies: algorithms and convergence analysis
• Optimal risk sharing and dividend strategies under default contagion: a semi-analytical approach
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• Singular optimal dividend control for the regime-switching Cramér-Lundberg model with credit and debit interest
• Harvesting of a stochastic population under a mixed regular-singular control formulation
• Approximating functionals of local martingales under lack of uniqueness of the Black-Scholes PDE solution
• A numerical approach to optimal dividend policies with capital injections and transaction costs

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