Optimal investment policy and dividend payment strategy in an insurance company

Azcue, Pablo ; Muler, Nora

Ann. Appl. Probab., Tome 20 (2010) no. 1, p. 1253-1302 / Harvested from Project Euclid

Résumé

We consider in this paper the optimal dividend problem for an insurance company whose uncontrolled reserve process evolves as a classical Cramér–Lundberg process. The firm has the option of investing part of the surplus in a Black–Scholes financial market. The objective is to find a strategy consisting of both investment and dividend payment policies which maximizes the cumulative expected discounted dividend pay-outs until the time of bankruptcy. We show that the optimal value function is the smallest viscosity solution of the associated second-order integro-differential Hamilton–Jacobi–Bellman equation. We study the regularity of the optimal value function. We show that the optimal dividend payment strategy has a band structure. We find a method to construct a candidate solution and obtain a verification result to check optimality. Finally, we give an example where the optimal dividend strategy is not barrier and the optimal value function is not twice continuously differentiable.

Détail

Publié le : 2010-08-15
Classification:  Cramér–Lundberg process,  insurance,  dividend payment strategy,  optimal investment policy,  Hamilton–Jacobi–Bellman equation,  viscosity solution,  risk control,  dynamic programming principle,  band strategy,  barrier strategy,  91B30,  91B28,  91B70,  49L25