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DIVIDEND OPTIMIZATION FOR A REGIME-SWITCHING DIFFUSION MODEL WITH RESTRICTED DIVIDEND RATES

Published online by Cambridge University Press:  13 February 2014

Jinxia Zhu
Jinxia Zhu*
Affiliation:
School of Risk and Actuarial Studies, Level 2 Quadrangle Building, University of New South Wales, Kensington Campus, Sydney, NSW 2052, Australia E-mail: jinxia.zhu@unsw.edu.au
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Abstract

We consider the optimal dividend control problem to find an optimal strategy under the constraint that dividend rates is restricted such that the expected total discounted dividends are maximized for an insurance company. The evolution of the reserve is modeled by a diffusion process with drift and volatility coefficients modulated by an observable Markov chain. We consider the regime-switching threshold strategy which pays out dividends at the maximal possible rate when the current reserve is above some critical level dependent on the regime of the Markov chain at the time, and pays nothing when the reserve is below that level. We give sufficient conditions under which such type of strategy is optimal for the regime-switching model.

Keywords

Dividendsoptimizationregime-switchingrestricted dividend ratethreshold strategy
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 2 , May 2014 , pp. 459 - 494
Copyright
Copyright © ASTIN Bulletin 2014 

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