On optimality of barrier dividend control under endogenous regime switching with application to Chapter 11 bankruptcy

DOI10.1007/S00245-023-10079-1MaRDI QIDQ6183320zbMATH OpenOpenAlexFDO

Authors

Publication date 4 January 2024

Published in Applied Mathematics and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2108.01800

zbMATH Keywords

barrier strategyChapter 11 bankruptcyDe Finetti's optimal dividendParisian ruin with exponential delayscale functionsspectrally negative Lévy process

Mathematics Subject Classification ID

Dynamic programming in optimal control and differential games (49L20) Processes with independent increments; Lévy processes (60G51) Actuarial mathematics (91G05) Corporate finance (dividends, real options, etc.) (91G50) Optimal stochastic control (93E20)

Abstract: Motivated by recent developments in risk management based on the U.S. bankruptcy code, we revisit the De Finetti's optimal dividend problem by incorporating the reorganization process and regulator's intervention documented in Chapter 11 bankruptcy. The resulting surplus process, bearing financial stress towards the more subtle concept of bankruptcy, corresponds to a non-standard spectrally negative Levy process with endogenous regime switching. Some explicit expressions of the expected present values under a barrier strategy, new to the literature, are established in terms of scale functions. With the help of these expressions, when the tail of the Levy measure is log-convex, the optimal dividend control is shown to be of the barrier type and the associated optimal barrier can be identified using scale functions of spectrally negative Levy processes. Some financial implications are also discussed in an illustrative example.

Recommendations

• On de Finetti's optimal impulse dividend control problem under Chapter 11 bankruptcy
• On optimality of the barrier strategy in de Finetti's dividend problem for spectrally negative Lévy processes
• scientific article; zbMATH DE number 7266444
• Optimality of the barrier strategy in de Finetti's dividend problem for spectrally negative Lévy processes: an alternative approach
• On the optimal dividend problem for a spectrally negative Lévy process

Cites work

• An Optimal Dividends Problem with a Terminal Value for Spectrally Negative Lévy Processes with a Completely Monotone Jump Density
• An optimal dividends problem with transaction costs for spectrally negative Lévy processes
• Brownian Excursions and Parisian Barrier Options
• Convexity and smoothness of scale functions and de Finetti's control problem
• De Finetti's optimal dividends problem with an affine penalty function at ruin
• Distribution of the Present Value of Dividend Payments in a Lévy Risk Model
• Distributional Study of De Finetti's Dividend Problem for a General Lévy Insurance Risk Process
• Exit identities for Lévy processes observed at Poisson arrival times
• Fluctuations of Lévy processes with applications. Introductory lectures
• scientific article; zbMATH DE number 51724 (Why is no real title available?)
• scientific article; zbMATH DE number 1834045 (Why is no real title available?)
• scientific article; zbMATH DE number 3307211 (Why is no real title available?)
• Liquidation risk in insurance under contemporary regulatory frameworks
• On Gerber-Shiu functions and optimal dividend distribution for a Lévy risk process in the presence of a penalty function
• On optimal dividends in the dual model
• On optimality of the barrier strategy in de Finetti's dividend problem for spectrally negative Lévy processes
• On pre-exit joint occupation times for spectrally negative Lévy processes
• On the bail-out optimal dividend problem
• On the bailout dividend problem for spectrally negative Markov additive models
• On the dual risk model with Parisian implementation delays in dividend payments
• On the optimal dividend problem for a spectrally negative Lévy process
• On the optimality of joint periodic and extraordinary dividend strategies
• Optimal Consumption for General Diffusions with Absorbing and Reflecting Barriers
• Optimal dividend strategy for an insurance group with contagious default risk
• Optimal dividends in the dual model under transaction costs
• Optimal dividends with partial information and stopping of a degenerate reflecting diffusion
• Optimal insurance strategies: a hybrid deep learning Markov chain approximation approach
• Optimal periodic dividend strategies for spectrally positive Lévy risk processes with fixed transaction costs
• Optimality results for dividend problems in insurance
• Optimization of the flow of dividends
• Pricing corporate debt with finite maturity and chapter 11 proceedings
• Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics
• Smoothness of scale functions for spectrally negative Lévy processes
• Strategies for dividend distribution: a review
• Strikingly simple identities relating exit problems for Lévy processes under continuous and Poisson observations
• The Leland-Toft optimal capital structure model under Poisson observations
• The theory of scale functions for spectrally negative Lévy processes

Cited in

(7)

• On de Finetti's optimal impulse dividend control problem under Chapter 11 bankruptcy
• On the moments of dividends and capital injections under a variant type of Parisian ruin
• Optimal dividend and capital injection under Markov modulated spectrally positive risk models
• Optimal prediction of the last r-excursion time of Brownian motion models
• Optimal dividend, investment, and risk control strategies in a financial market with dynamic contagion jumps
• De Finetti’s Poissonian dividend control problem under spectrally positive Markov additive process
• De Finetti's problem with fixed transaction costs and regime switching

This page was built for publication: On optimality of barrier dividend control under endogenous regime switching with application to Chapter 11 bankruptcy

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6183320)