On a dividend problem with random funding

Eur Actuar J. 2019;9(2):607-633. doi: 10.1007/s13385-019-00208-y. Epub 2019 Jun 13.

Abstract

We consider a modification of the dividend maximization problem from ruin theory. Based on a classical risk process we maximize the difference of expected cumulated discounted dividends and total expected discounted additional funding (subject to some proportional transaction costs). For modelling dividends we use the common approach whereas for the funding opportunity we use the jump times of another independent Poisson process at which we choose an appropriate funding height. In case of exponentially distributed claims we are able to determine an explicit solution to the problem and derive an optimal strategy whose nature heavily depends on the size of the transaction costs. Furthermore, the optimal strategy identifies unfavourable surplus positions prior to ruin at which refunding is highly recommended.

Keywords: Classical risk model; Dividends; Ruin theory; Stochastic control.