Open AccessOptimal financing and dividend strategies in a dual model with proportional costs
Author(s) -
Dingjun Yao,
Hailiang Yang,
Rongming Wang
Publication year - 2010
Publication title -
journal of industrial and management optimization
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.325
H-Index - 32
eISSN - 1553-166X
pISSN - 1547-5816
DOI - 10.3934/jimo.2010.6.761
Subject(s) - bankruptcy , dual (grammatical number) , equity (law) , transaction cost , dividend , cost of equity , actuarial science , economics , value (mathematics) , computer science , mathematical optimization , finance , econometrics , mathematics , microeconomics , cost of capital , statistics , profit (economics) , literature , art , political science , law
We consider the optimal control problem with dividend payments and issuance of equity in a dual risk model. Such a model might be appropriate for a company that specializes in inventions and discoveries, which pays costs continuously and has occasional profits. Assuming proportional transaction costs, we aim at finding optimal strategy which maximizes the expected present value of the dividends payout minus the discounted costs of issuing new equity before bankruptcy. By adopting some of the techniques and methodologies in LØkka and Zervos (2008), we construct two categories of suboptimal models, one is the ordinary dual model without issuance of equity, the other one assumes that, by issuing new equity, the company never goes bankrupt. We identify the value functions and the optimal strategies corresponding to the suboptimal models in two different cases. For exponentially distributed jump sizes, closed-form solutions are obtained.link_to_subscribed_fulltex