Optimal Dividend Control for a Generalized Risk Model with Investment Incomes and Debit Interest

Scandinavian Actuarial Journal, DOI:10.1080/03461238.2011.585771, Forthcoming

19 Pages Posted: 26 Nov 2012

See all articles by Jinxia Zhu

Jinxia Zhu

Risk and Actuarial Studies, Australian School of Business, The Univeristy of New South Wales

Date Written: Feburary 25, 2010

Abstract

This paper investigates dividend optimization of an insurance corporation under a more realistic model which takes into consideration refinancing or capital injections. The model follows the compound Poisson framework with credit interest for positive reserve, and debit interest for negative reserve. Ruin occurs when the reserve drops below the critical value. The company controls the dividend pay-out dynamically with the objective to maximize the expected total discounted dividends until ruin. We show that that the optimal strategy is a band strategy and that it is optimal to pay no dividends when the reserve is negative.

Keywords: Absolute ruin, dividend optimization, stochastic control, value function, viscosity solution

JEL Classification: C61, C02

Suggested Citation

Zhu, Jinxia, Optimal Dividend Control for a Generalized Risk Model with Investment Incomes and Debit Interest (Feburary 25, 2010). Scandinavian Actuarial Journal, DOI:10.1080/03461238.2011.585771, Forthcoming , Available at SSRN: https://ssrn.com/abstract=2180639

Jinxia Zhu (Contact Author)

Risk and Actuarial Studies, Australian School of Business, The Univeristy of New South Wales ( email )

Australia

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