Dividend maximization in a hidden Markov switching model

DOI10.1515/STRM-2015-0019zbMATH Open1408.91107arXiv1602.04656OpenAlexW3126137325MaRDI QIDQ293597FDOQ293597

Michaela Szölgyenyi

Publication date: 9 June 2016

Published in: Statistics \& Risk Modeling (Search for Journal in Brave)

Abstract: In this paper we study the valuation problem of an insurance company by maximizing the expected discounted future dividend payments in a model with partial information that allows for a changing economic environment. The surplus process is modeled as a Brownian motion with drift. This drift depends on an underlying Markov chain the current state of which is assumed to be unobservable. The different states of the Markov chain thereby represent different phases of the economy. We apply results from filtering theory to overcome uncertainty and then we give an analytic characterization of the optimal value function. Finally, we present a numerical study covering various scenarios to get a clear picture of how dividends should be paid out.

Full work available at URL: https://arxiv.org/abs/1602.04656

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zbMATH Keywords

hidden Markov modelstochastic optimal controlviscosity solutionsdividend maximizationfiltering theory

Mathematics Subject Classification ID

Applications of continuous-time Markov processes on discrete state spaces (60J28) Stochastic models in economics (91B70) Optimal stochastic control (93E20)

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Cited In (6)

• Well-posedness and numerical schemes for one-dimensional McKean-Vlasov equations and interacting particle systems with discontinuous drift
• Optimal financing and dividend policy with Markovian switching regimes
• Bayesian optimal investment and reinsurance with dependent financial and insurance risks
• Optimal investment and dividend for an insurer under a Markov regime switching market with high gain tax
• Convergence of the Euler-Maruyama method for multidimensional SDEs with discontinuous drift and degenerate diffusion coefficient
• Optimal dividend policy with liability constraint under a hidden Markov regime-switching model

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