Department of Applied Finance and Actuarial Studies
Seminar by Dr Bernard Wong
- Topic: On a mean reverting dividend strategy with Brownian motion
- Speaker: Dr Bernard Wong, Senior Lecturer of Actuarial Studies, Australian School of Business, University of New South Wales
- When: 31st August, 2012, (Fri)
In this paper, we model the surplus of a company with a Brownian risk model. Dividends are paid at a constant rate g of the company's modified surplus (after distribution of dividends), which operates as a buffer reservoir to yield a regular flow of shareholders' income. The dividend payment rate reverts around the drift of the original process \mu, whereas the modified surplus itself reverts around the level l=\mu/g.
We determine the distribution of the present value of dividends when the surplus process is never absorbed. After introducing an absorbing barrier a (inferior to the initial surplus) and stating the Laplace transform of the time of absorption, we derive the expected present value of dividends until absorption. The latter is then also determined if dividends are not paid whenever the surplus is too close to the absorbing barrier. We conclude by comparing both barrier and mean reverting dividend strategies.
Link to paper: http://dx.doi.org/10.1016/j.insmatheco.2012.04.002