Discrete dividend payments in continuous time

DOI10.1287/MOOR.2020.1081MaRDI QIDQ4958548zbMATH OpenOpenAlexFDO

Authors Jussi Keppo, H. Mete Soner

Publication date 14 September 2021

Published in Mathematics of Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1805.05077

zbMATH Keywords

capital structureequity issuanceimpulse controloptimal dividendsPDE regularity

Mathematics Subject Classification ID

Dynamic programming in optimal control and differential games (49L20) Impulsive optimal control problems (49N25) Dynamic programming (90C39) Decision theory (91B06) Microeconomic theory (price theory and economic markets) (91B24)

Abstract: We propose a model in which dividend payments occur at regular, deterministic intervals in an otherwise continuous model. This contrasts traditional models where either the payment of continuous dividends is controlled or the dynamics are given by discrete time processes. Moreover, between two dividend payments, the structure allows for other types of control; we consider the possibility of equity issuance at any point in time. The value is characterized as the fixed point of an optimal control problem with periodic initial and terminal conditions. We prove the regularity and uniqueness of the corresponding dynamic programming equation, and the convergence of an efficient numerical algorithm that we use to study the problem. The model enables us to find the loss caused by infrequent dividend payments. We show that under realistic parameter values this loss varies from around 1% to 24% depending on the state of the system, and that using the optimal policy from the continuous problem further increases the loss.

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Cites work

• scientific article; zbMATH DE number 3128787 (Why is no real title available?)
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Cited in

(3)

• Portfolio optimization with early announced discrete dividends
• Estimating discrete dividends by no-arbitrage
• Optimal dividend payout with path-dependent drawdown constraint

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