On optimal dividends with exponential and linear penalty payments |
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Institution: | 1. School of Finance, Nanjing University of Finance and Economics, Nanjing 210023, PR China;2. Department of Statistics and Actuarial Science, The University of Hong Kong, Hong Kong, PR China;3. School of Finance and Statistics, East China Normal University, Shanghai 200241, PR China |
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Abstract: | We study the optimal dividend problem where the surplus process of an insurance company is modelled by a diffusion process. The insurer is not ruined when the surplus becomes negative, but penalty payments occur, depending on the level of the surplus. The penalty payments shall avoid that losses can rise above any number and can be seen as a preference measure or costs for negative capital. As examples, exponential and linear penalty payments are considered. It turns out that a barrier dividend strategy is optimal. |
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Keywords: | Optimal dividends Penalty payments Barrier strategy Diffusion process |
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