A mixed singular/switching control problem for a dividend policy with reversible technology investment

DOI10.1214/07-AAP482zbMATH Open1141.60020arXiv0806.2745OpenAlexW2140264779MaRDI QIDQ930682FDOQ930682

Huyên Pham, Stéphane Villeneuve, Vathana Ly Vath

Publication date: 1 July 2008

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

Abstract: We consider a mixed stochastic control problem that arises in Mathematical Finance literature with the study of interactions between dividend policy and investment. This problem combines features of both optimal switching and singular control. We prove that our mixed problem can be decoupled in two pure optimal stopping and singular control problems. Furthermore, we describe the form of the optimal strategy by means of viscosity solution techniques and smooth-fit properties on the corresponding system of variational inequalities. Our results are of a quasi-explicit nature. From a financial viewpoint, we characterize situations where a firm manager decides optimally to postpone dividend distribution in order to invest in a reversible growth opportunity corresponding to a modern technology. In this paper a reversible opportunity means that the firm may disinvest from the modern technology and return back to its old technology by receiving some gain compensation. The results of our analysis take qualitatively different forms depending on the parameters values.

Full work available at URL: https://arxiv.org/abs/0806.2745

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zbMATH Keywords

viscosity solutionsystem of variational inequalitiesmixed singular/switching control problemsmooth-fit property

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Stochastic models in economics (91B70) Optimal stochastic control (93E20)

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Cited In (18)

• Optimal Dividend Payment and Regime Switching in a Compound Poisson Risk Model
• A full balance sheet two-mode optimal switching problem
• Finite-horizon optimal multiple switching with signed switching costs
• Optimal dividend policy and growth option
• On the equality of solutions of max-min and min-max systems of variational inequalities with interconnected bilateral obstacles
• Optimal strategies in a risky debt context
• A singular stochastic control problem with direction switching cost
• Optimal dividend and capital structure with debt covenants
• A multidimensional problem of optimal dividends with irreversible switching: a convergent numerical scheme
• Optimal switching in finite horizon under state constraints
• Liquidity management with decreasing returns to scale and secured credit line
• The impact of negative interest rates on optimal capital injections
• Optimizing venture capital investments in a jump diffusion model
• Classical and singular stochastic control for the optimal dividend policy when there is regime switching
• Systems of reflected BSDEs with interconnected bilateral obstacles: existence, uniqueness and applications
• On a mixed singular/switching control problem with multiple regimes
• Optimal exit strategies for investment projects
• Liquidity risk and optimal dividend/investment strategies

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