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Optimal Dividends in the Dual Model Under Transaction Costs

22 Pages Posted: 27 Feb 2014  

Erhan Bayraktar

University of Michigan at Ann Arbor - Department of Mathematics

Andreas E. Kyprianou

University of Bath

Kazutoshi Yamazaki

Kansai University - Department of Mathematics

Date Written: February 26, 2014

Abstract

We analyze the optimal dividend payment problem in the dual model under constant transaction costs. We show, for a general spectrally positive Levy process, an optimal strategy is given by a (c1, c2)-policy that brings the surplus process down to c1 whenever it reaches or exceeds c2 for some 0<=c1< c2. The value function is succinctly expressed in terms of the scale function. A series of numerical examples are provided to confirm the analytical results and to demonstrate the convergence to the no-transaction cost case, which was recently solved by Bayraktar et al. (2013).

Keywords: dual model, dividends, impulse control, spectrally positive Levy processes, scale functions

JEL Classification: C44, C61, G24, G32, G35

Suggested Citation

Bayraktar, Erhan and Kyprianou, Andreas E. and Yamazaki, Kazutoshi, Optimal Dividends in the Dual Model Under Transaction Costs (February 26, 2014). Insurance: Mathematics and Economics, Vol. 54, 2014. Available at SSRN: https://ssrn.com/abstract=2401644

Erhan Bayraktar

University of Michigan at Ann Arbor - Department of Mathematics ( email )

2074 East Hall
530 Church Street
Ann Arbor, MI 48109-1043
United States

Andreas E. Kyprianou

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Kazutoshi Yamazaki (Contact Author)

Kansai University - Department of Mathematics ( email )

3-3-35 Yamate-cho, Suita-shi
Osaka, 564-8680
Japan

HOME PAGE: http://https://sites.google.com/site/kyamazak/

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