On the optimal dividend problem for a spectrally negative Lévy process

DOI10.1214/105051606000000709zbMATH Open1136.60032arXivmath/0702893OpenAlexW2079068657MaRDI QIDQ2467114FDOQ2467114

Zbigniew Palmowski, F. Avram, Martijn R. Pistorius

Publication date: 18 January 2008

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

Abstract: In this paper we consider the optimal dividend problem for an insurance company whose risk process evolves as a spectrally negative L'{e}vy process in the absence of dividend payments. The classical dividend problem for an insurance company consists in finding a dividend payment policy that maximizes the total expected discounted dividends. Related is the problem where we impose the restriction that ruin be prevented: the beneficiaries of the dividends must then keep the insurance company solvent by bail-out loans. Drawing on the fluctuation theory of spectrally negative L'{e}vy processes we give an explicit analytical description of the optimal strategy in the set of barrier strategies and the corresponding value function, for either of the problems. Subsequently we investigate when the dividend policy that is optimal among all admissible ones takes the form of a barrier strategy.

Full work available at URL: https://arxiv.org/abs/math/0702893

zbMATH Keywords

scale functionlocal timereflectionfluctuation theorydividend problemLévy process

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Markov processes (60J99) Corporate finance (dividends, real options, etc.) (91G50) Optimal stochastic control (93E20)

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