Optimal dividends under Erlang(2) inter-dividend decision times

Abstract

In the classical dividends problem, dividend decisions are allowed to be made at any time. Under such a framework, the optimal dividend strategies are often of barrier or threshold type, which can lead to very irregular dividend payments over time. In practice however companies distribute dividends on a periodic basis. In that spirit, “Erlangisation” techniques have been used to approximate problems with fixed inter-dividend decision times. When studying the optimality of such strategies, the existing literature focuses exclusively on the special case of exponential – that is, Erlang(1) – inter-dividend decision times. Higher dimensional models are surprisingly difficult to study due to the..