Optimal periodic dividend strategies for spectrally positive Lévy risk processes with fixed transaction costs
AuthorAvanzi, B; Lau, H; Wong, B
Source TitleInsurance: Mathematics and Economics
University of Melbourne Author/sAvanzi, Benjamin
Document TypeJournal Article
CitationsAvanzi, B., Lau, H. & Wong, B. (2020). Optimal periodic dividend strategies for spectrally positive Lévy risk processes with fixed transaction costs. Insurance: Mathematics and Economics, 93, pp.315-332. https://doi.org/10.1016/j.insmatheco.2020.05.012.
Access StatusThis item is embargoed and will be available on 2022-07-31
We consider the general class of spectrally positive Lévy risk processes, which are appropriate for businesses with continuous expenses and lump sum gains whose timing and sizes are stochastic. Motivated by the fact that dividends cannot be paid at any time in real life, we study periodic dividend strategies whereby dividend decisions are made according to a separate arrival process. In this paper, we investigate the impact of fixed transaction costs on the optimal periodic dividend strategy, and show that a periodic strategy is optimal when decision times arrive according to an independent Poisson process. Such a strategy leads to lump sum dividends that bring the surplus back to as long as it is no less than at a dividend decision time. The expected present value of dividends (net of transaction costs) is provided explicitly with the help of scale functions. Results are illustrated.
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