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On the Optimal Dividend Strategy in a Regime-Switching Diffusion Model

Part of: Stochastic systems and control Stochastic analysis Mathematical economics

Published online by Cambridge University Press:  04 January 2016

Jiaqin Wei ,
Rongming Wang  and
Hailiang Yang
Jiaqin Wei*
Affiliation:
East China Normal University
Rongming Wang*
Affiliation:
East China Normal University
Hailiang Yang*
Affiliation:
The University of Hong Kong
*
∗ Postal address: School of Finance and Statistics, East China Normal University, Shanghai, 200241, China.
∗ Postal address: School of Finance and Statistics, East China Normal University, Shanghai, 200241, China.
∗∗∗∗ Postal address: Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong, China. Email address: [email protected]
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Abstract

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In this paper we consider the optimal dividend strategy under the diffusion model with regime switching. In contrast to the classical risk theory, the dividends can only be paid at the arrival times of a Poisson process. By solving an auxiliary optimal problem we show that the optimal strategy is the modulated barrier strategy. The value function can be obtained by iteration or by solving the system of differential equations. We also provide a numerical example to illustrate the effects of the restriction on the timing of the payment of dividends.

Keywords

Dividend strategyregime switchingHJB equationMarkov decision process

MSC classification

Primary: 93E20: Optimal stochastic control
Secondary: 91B70: Stochastic models 60H30: Applications of stochastic analysis (to PDE, etc.)
Type
General Applied Probability
Information
Advances in Applied Probability , Volume 44 , Issue 3 , September 2012 , pp. 886 - 906
Copyright
© Applied Probability Trust 

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