Optimal dividends under Erlang(2) inter-dividend decision times
Benjamin Avanzi, Vincent Tu, Bernard Wong
Insurance: Mathematics and Economics | Elsevier | Published : 2018
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..View full abstract
Awarded by Australian Research Council's Linkage Projects funding scheme
The authors are grateful to the referees for providing useful comments. In particular, one referee suggested a more elegant proof for the probability of ruin derived in Section 2.3, which is now included in the paper. This research was supported under Australian Research Council's Linkage Projects funding scheme (project number LP130100723). Vincent Tu acknowledges financial support from an Australian Postgraduate Award and supplementary scholarships provided by the UNSW Australia Business School. The views expressed herein are those of the authors and are not necessarily those of the supporting organisations.