Shuaiqi Zhang

Some Results on Optimal Dividend Problem in Two Risk Models

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Author(s)

Shuaiqi Zhang ^1,*

1. School of Mathematical Science and Computing Technology, Central South University, Changsha, China

* Corresponding author.

DOI: https://doi.org/10.5815/ijieeb.2010.02.04

Received: 4 Sep. 2010 / Revised: 19 Oct. 2010 / Accepted: 6 Nov. 2010 / Published: 8 Dec. 2010

Index Terms

Optimal dividend, solvency constraints, compound Poisson risk model, compound Poisson risk model perturbed by diffusion

Abstract

The compound Poisson risk model and the compound Poisson risk model perturbed by diffusion are considered in the presence of a dividend barrier with solvency constraints. Moreover, it extends the known result due to [1]. Ref. [1] finds the optimal dividend policy is of a barrier type for a jump-diffusion model with exponentially distributed jumps. In this paper, it turns out that there can be two different solutions depending on the model’s parameters. Furthermore, an interesting result is given: the proportional transaction cost has no effect on the dividend barrier. The objective of the corporation is to maximize the cumulative expected discounted dividends payout with solvency constraints before the time of ruin. It is well known that under some reasonable assumptions, optimal dividend strategy is a barrier strategy, i.e., there is a level so that whenever surplus goes above the level , the excess is paid out as dividends. However, the optimal level may be unacceptably low from a solvency point of view. Therefore, some constraints should imposed on an insurance company such as to pay out dividends unless the surplus has reached a level . We show that in this case a barrier strategy at optimal.

Cite This Paper

Shuaiqi Zhang, "Some Results on Optimal Dividend Problem in Two Risk Models", International Journal of Information Engineering and Electronic Business(IJIEEB), vol.2, no.2, pp.24-30, 2010. DOI:10.5815/ijieeb.2010.02.04

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International Journal of Information Engineering and Electronic Business (IJIEEB)