On a mean reverting dividend strategy with Brownian motion

Abstract

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..