Journal article

On a mean reverting dividend strategy with Brownian motion

Benjamin Avanzi, Bernard Wong



In actuarial risk theory, the introduction of dividend pay-outs in surplus models goes back to de Finetti (1957). Dividend strategies that can be found in the literature often yield pay-out patterns that are inconsistent with actual practice. One issue is the high variability of the dividend payment rates over time. We aim at addressing that problem by specifying a dividend strategy that yields stable dividend pay-outs over time.In this paper, we model the surplus of a company with a Brownian risk model. Dividends are paid at a constant rate g of the company's modified surplus (after distribution of dividends), which operates as a buffer reservoir to yield a regular flow of shareholders' inc..

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University of Melbourne Researchers


Funding Acknowledgements

Benjamin Avanzi acknowledges financial support from an Australian School of Business Research Grant. The authors acknowledge the excellent research assistance of Jonathan Shen and Chung-Yu Liu, and are grateful to an anonymous referee for helpful comments.