A Note on Realistic Dividends in Actuarial Surplus Models

9 Pages Posted: 19 Nov 2015 Last revised: 4 Aug 2016

See all articles by Benjamin Avanzi

Benjamin Avanzi

UNSW Australia Business School, School of Risk and Actuarial Studies

Vincent Tu

UNSW Australia Business School, School of Risk & Actuarial Studies

Bernard Wong

UNSW Australia Business School, School of Risk & Actuarial Studies

Date Written: August 3, 2016

Abstract

Because of the profitable nature of risk businesses in the long term, de Finetti (1957) suggested that surplus models should allow for cash leakages, as otherwise the surplus would unrealistically grow (on average) to the infinity. These leakages were interpreted as 'dividends'. Subsequent literature on actuarial surplus models with dividend distribution has mainly focussed on dividend strategies that either maximise the expected present value of dividends until ruin or lead to a probability of ruin that is inferior to one (Albrecher and Thonhauser, 2009; Avanzi, 2009). Few papers are directly interested in modelling dividend policies that are consistent with actual practice in financial markets. In this short note, we review the corporate finance literature with the specific aim of fleshing out properties that dividend strategies should ideally satisfy, if the objective of the model was one of practicality.

Keywords: surplus models, dividends, de Finetti, corporate finance

Suggested Citation

Avanzi, Benjamin and Tu, Vincent and Wong, Bernard, A Note on Realistic Dividends in Actuarial Surplus Models (August 3, 2016). UNSW Business School Research Paper No. 2015ACTL20. Available at SSRN: https://ssrn.com/abstract=2691226 or http://dx.doi.org/10.2139/ssrn.2691226

Benjamin Avanzi (Contact Author)

UNSW Australia Business School, School of Risk and Actuarial Studies ( email )

UNSW Sydney, NSW 2052
Australia

Vincent Tu

UNSW Australia Business School, School of Risk & Actuarial Studies ( email )

Room 2058 South Wing 2nd Floor
Quadrangle building, Kensington Campus
Sydney, NSW 2052
Australia

Bernard Wong

UNSW Australia Business School, School of Risk & Actuarial Studies ( email )

Room 2058 South Wing 2nd Floor
Quadrangle building, Kensington Campus
Sydney, NSW 2052
Australia

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