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Optimal Dividend Strategy Under Parisian Ruin with Affine Penalty

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  • Ran Xu

    (Xi’an Jiaotong–Liverpool University)

  • Wenyuan Wang

    (Xiamen University)

  • Jose Garrido

    (Concordia University)

Abstract

In this paper, we investigate the optimal dividend problem under Parisian ruin with affine penalty payments at Parisian ruin time. The underlying risk process is assumed to be a spectrally negative Lévy risk process. With the help of the dynamic programming principle, we prove that the value function associated to our optimal control problem is the smallest solution with certain characteristics to the corresponding Hamilton–Jacobi–Bellman (HJB) equation. In addition, the form of the performance function under barrier dividend strategy is expressed in terms of various extended scale functions. Then we identify a condition under which the performance function under certain barrier strategy is also a solution to the HJB equation, which in turn illustrates the optimalilty of such barrier dividend strategy among all admissible strategies. Various numerical examples are also given when the underlying risk process is compound Poisson process, Brownian motion with drift and jump-diffusion process.

Suggested Citation

  • Ran Xu & Wenyuan Wang & Jose Garrido, 2022. "Optimal Dividend Strategy Under Parisian Ruin with Affine Penalty," Methodology and Computing in Applied Probability, Springer, vol. 24(3), pages 1385-1409, September.
    • Handle: RePEc:spr:metcap:v:24:y:2022:i:3:d:10.1007_s11009-021-09865-7
    DOI: 10.1007/s11009-021-09865-7
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    References listed on IDEAS

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