On the surplus management of funds with assets and liabilities in presence of solvency requirements

DOI10.1080/03461238.2022.2116725zbMATH Open1525.91151arXiv2203.05139MaRDI QIDQ6098034FDOQ6098034

Authors: Benjamin Avanzi, Ping Chen, Lars Frederik Brandt Henriksen, Bernard Wong 

Publication date: 9 June 2023

Published in: Scandinavian Actuarial Journal (Search for Journal in Brave)

Abstract: In this paper we consider a company whose assets and liabilities evolve according to a correlated bivariate geometric Brownian motion, such as in Gerber and Shiu (2003). We determine what dividend strategy maximises the expected present value of dividends until ruin in two cases: (i) when shareholders won't cover surplus shortfalls and a solvency constraint (as in Paulsen, 2003) is consequently imposed, and (ii) when shareholders are always to fund any capital deficiency with capital (asset) injections. In the latter case, ruin will never occur and the objective is to maximise the difference between dividends and capital injections. Developing and using appropriate verification lemmas, we show that the optimal dividend strategy is, in both cases, of barrier type. Both value functions are derived in closed form. Furthermore, the barrier is defined on the ratio of assets to liabilities, which mimics some of the dividend strategies that can be observed in practice by insurance companies. Existence and uniqueness of the optimal strategies are shown. Results are illustrated.

Full work available at URL: https://arxiv.org/abs/2203.05139

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zbMATH Keywords

regulationstochastic controlsolvencycapital injectionsoptimal dividendsfunding ratio

Mathematics Subject Classification ID

Actuarial mathematics (91G05) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Optimal stochastic control (93E20)

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• ON THE DISTRIBUTION OF THE EXCEDENTS OF FUNDS WITH ASSETS AND LIABILITIES IN PRESENCE OF SOLVENCY AND RECOVERY REQUIREMENTS
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• ON THE DISTRIBUTION OF THE EXCEDENTS OF FUNDS WITH ASSETS AND LIABILITIES IN PRESENCE OF SOLVENCY AND RECOVERY REQUIREMENTS

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