On the optimality of joint periodic and extraordinary dividend strategies

Abstract

In this paper, we model the cash surplus (or equity) of a risky business with a Brownian motion (with a drift). Owners can take cash out of the surplus in the form of “dividends”, subject to transaction costs. However, if the surplus hits 0 then ruin occurs and the business cannot operate any more. We consider two types of dividend distributions: (i) periodic, regular ones (that is, dividends can be paid only at countably many points in time, according to a specific arrival process); and (ii) extraordinary dividend payments that can be made immediately at any time (that is, the dividend decision time space is continuous and matches that of the surplus process). Both types of dividends attra..