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Optimal Dividend Policy When Cash Surplus Follows The Telegraph Process

Author

Listed:
  • Igor G. Pospelov

    (National Research University Higher School of Economics)

  • Stanislav A. Radionov

    (National Research University Higher School)

Abstract

This article contributes to research dealing with the optimal dividend policy problem of a fi rm whose goal is to maximize the expected total discounted dividend payments before bankruptcy. We consider a model of a firm whose cash surplus exhibits regime switching, but unlike the existing literature, we exclude diffusion from our model. We assume firm's cash surplus follows the telegraph process, which leads to the problem of singular stochastic control. Surprisingly, this problem turns out to be more complicated than the ones arising in the models involving diffusion. We solve this problem using the method of variational inequalities and show that the optimal dividend policy can be of three signi cantly different types depending on the parameters of the model

Suggested Citation

  • Igor G. Pospelov & Stanislav A. Radionov, 2015. "Optimal Dividend Policy When Cash Surplus Follows The Telegraph Process," HSE Working papers WP BRP 48/FE/2015, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:48/fe/2015
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    References listed on IDEAS

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    More about this item

    Keywords

    optimal dividend policy; regime switching; telegraph process.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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