Optimal payout policy in presence of downside risk |
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Authors: | Luis H R Alvarez Teppo A Rakkolainen |
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Institution: | (1) Department of Economics, Turku School of Economics, 20500 Turku, Finland |
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Abstract: | We analyze the determination of a value maximizing dividend payout policy for a broad class of cash reserve processes modeled
as spectrally negative jump diffusions. We extend previous results based on continuous diffusion models and characterize the
value of the optimal dividend distribution strategy explicitly. We also characterize explicitly the values as well as the
optimal dividend thresholds for a class of associated optimal liquidation and sequential lump sum dividend control problems.
Our results indicate that both the value as well as the marginal value of the optimal policies are increasing functions of
policy flexibility in the discontinuous setting as well.
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Keywords: | Dividend optimization Downside risk Impulse control Jump diffusion Optimal stopping Singular stochastic control |
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