Optimal Dividends under Markov-Modulated Bankruptcy Level

Ferrari G, Schuhmann P, Zhu S (2021) Center for Mathematical Economics Working Papers; 657.
Bielefeld: Center for Mathematical Economics.

Diskussionspapier | Veröffentlicht | Englisch
 
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Abstract / Bemerkung
This paper proposes and solves an optimal dividend problem in which a two-state regime- switching environment affects the dynamics of the company’s cash surplus and, as a novel feature, also the bankruptcy level. The aim is to maximize the total expected profits from dividends until bankruptcy. The company’s optimal dividend payout is therefore influenced by four factors simul- taneously: Brownian fluctuations in the cash surplus, as well as regime changes in drift, volatility and bankruptcy levels. In particular, the average profitability can assume different signs in the two regimes. We find a rich structure of the optimal strategy, which, depending on the interaction of the model’s parameters, is either of *barrier-type* or of *liquidation-barrier type*. Furthermore, we provide explicit expressions of the optimal policies and value functions. Finally, we complement our theoret- ical results by a detailed numerical study, where also a thorough analysis of the sensitivities of the optimal dividend policy with respect to the problem’s parameters is performed.

MSC Classification: 91B70, 93E20, 60H30
Stichworte
Optimal dividend policy; Regime-switching; Regime-dependent bankruptcy levels; HJB equation; Singular stochastic control
Erscheinungsjahr
2021
Serientitel
Center for Mathematical Economics Working Papers
Band
657
Seite(n)
35
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2959047

Zitieren

Ferrari G, Schuhmann P, Zhu S. Optimal Dividends under Markov-Modulated Bankruptcy Level. Center for Mathematical Economics Working Papers. Vol 657. Bielefeld: Center for Mathematical Economics; 2021.
Ferrari, G., Schuhmann, P., & Zhu, S. (2021). Optimal Dividends under Markov-Modulated Bankruptcy Level (Center for Mathematical Economics Working Papers, 657). Bielefeld: Center for Mathematical Economics.
Ferrari, G., Schuhmann, P., and Zhu, S. (2021). Optimal Dividends under Markov-Modulated Bankruptcy Level. Center for Mathematical Economics Working Papers, 657, Bielefeld: Center for Mathematical Economics.
Ferrari, G., Schuhmann, P., & Zhu, S., 2021. Optimal Dividends under Markov-Modulated Bankruptcy Level, Center for Mathematical Economics Working Papers, no.657, Bielefeld: Center for Mathematical Economics.
G. Ferrari, P. Schuhmann, and S. Zhu, Optimal Dividends under Markov-Modulated Bankruptcy Level, Center for Mathematical Economics Working Papers, vol. 657, Bielefeld: Center for Mathematical Economics, 2021.
Ferrari, G., Schuhmann, P., Zhu, S.: Optimal Dividends under Markov-Modulated Bankruptcy Level. Center for Mathematical Economics Working Papers, 657. Center for Mathematical Economics, Bielefeld (2021).
Ferrari, Giorgio, Schuhmann, Patrick, and Zhu, Shihao. Optimal Dividends under Markov-Modulated Bankruptcy Level. Bielefeld: Center for Mathematical Economics, 2021. Center for Mathematical Economics Working Papers. 657.
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2021-11-15T12:42:26Z
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