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Optimal Dividends and Capital Injections in the Dual Model with a Random Time Horizon

Author

Listed:
  • Yongxia Zhao

    (Qufu Normal University)

  • Rongming Wang

    (East China Normal University)

  • Dingjun Yao

    (Nanjing University of Finance and Economics)

  • Ping Chen

    (University of Melbourne)

Abstract

This paper investigates an optimal dividend and capital injection problem in the dual model with a random horizon. Both fixed and proportional costs from the transactions of capital injection are considered. The objective is to maximize the total value of the expected discounted dividends and the penalized discounted capital injections during the horizon, which is described by the minimum of the time of ruin and an exponential random variable. By the fluctuation theory of Lévy processes, the optimal dividend and capital injection strategy is obtained. We also find that the optimal return function can be expressed in terms of the scale functions of Lévy processes. Besides, numerical examples are studied to illustrate our results.

Suggested Citation

  • Yongxia Zhao & Rongming Wang & Dingjun Yao & Ping Chen, 2015. "Optimal Dividends and Capital Injections in the Dual Model with a Random Time Horizon," Journal of Optimization Theory and Applications, Springer, vol. 167(1), pages 272-295, October.
    • Handle: RePEc:spr:joptap:v:167:y:2015:i:1:d:10.1007_s10957-014-0653-0
    DOI: 10.1007/s10957-014-0653-0
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    References listed on IDEAS

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    6. Avanzi, Benjamin & Shen, Jonathan & Wong, Bernard, 2011. "Optimal Dividends and Capital Injections in the Dual Model with Diffusion," ASTIN Bulletin, Cambridge University Press, vol. 41(2), pages 611-644, November.
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    10. Yao, Dingjun & Yang, Hailiang & Wang, Rongming, 2011. "Optimal dividend and capital injection problem in the dual model with proportional and fixed transaction costs," European Journal of Operational Research, Elsevier, vol. 211(3), pages 568-576, June.
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    Cited by:

    1. Zhao, Yongxia & Chen, Ping & Yang, Hailiang, 2017. "Optimal periodic dividend and capital injection problem for spectrally positive Lévy processes," Insurance: Mathematics and Economics, Elsevier, vol. 74(C), pages 135-146.
    2. Jos'e-Luis P'erez & Kazutoshi Yamazaki & Xiang Yu, 2017. "On the Bail-Out Optimal Dividend Problem," Papers 1709.06348, arXiv.org, revised Jun 2018.
    3. Jos'e-Luis P'erez & Kazutoshi Yamazaki, 2016. "Hybrid continuous and periodic barrier strategies in the dual model: optimality and fluctuation identities," Papers 1612.02444, arXiv.org, revised Jan 2018.
    4. Wenyuan Wang & Yuebao Wang & Ping Chen & Xueyuan Wu, 2022. "Dividend and Capital Injection Optimization with Transaction Cost for Lévy Risk Processes," Journal of Optimization Theory and Applications, Springer, vol. 194(3), pages 924-965, September.
    5. Pérez, José-Luis & Yamazaki, Kazutoshi, 2017. "On the optimality of periodic barrier strategies for a spectrally positive Lévy process," Insurance: Mathematics and Economics, Elsevier, vol. 77(C), pages 1-13.
    6. José-Luis Pérez & Kazutoshi Yamazaki & Xiang Yu, 2018. "On the Bail-Out Optimal Dividend Problem," Journal of Optimization Theory and Applications, Springer, vol. 179(2), pages 553-568, November.
    7. Noba, Kei, 2021. "On the optimality of double barrier strategies for Lévy processes," Stochastic Processes and their Applications, Elsevier, vol. 131(C), pages 73-102.
    8. Linlin Tian & Lihua Bai & Junyi Guo, 2020. "Optimal Singular Dividend Problem Under the Sparre Andersen Model," Journal of Optimization Theory and Applications, Springer, vol. 184(2), pages 603-626, February.

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