A Note on Realistic Dividends in Actuarial Surplus Models
AuthorAvanzi, B; Tu, V; Wong, B
University of Melbourne Author/sAvanzi, Benjamin
Document TypeJournal Article
CitationsAvanzi, B., Tu, V. & Wong, B. (2016). A Note on Realistic Dividends in Actuarial Surplus Models. RISKS, 4 (4), https://doi.org/10.3390/risks4040037.
Access StatusOpen Access
Open Access URLhttps://www.mdpi.com/2227-9091/4/4/37
Because of the profitable nature of risk businesses in the long term, de Finetti suggested that surplus models should allow for cash leakages, as otherwise the surplus would unrealistically grow (on average) to 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 less than one (see Albrecher and Thonhauser, Avanzi for reviews). An increasing number of 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 one wants to model behaviour that is consistent with practice.
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