This paper studies the optimal dividend for a multi-line insurance group, in which each subsidiary runs a product line and is exposed to some external credit default risk. The credit default contagion is considered in the sense that one credit default event can affect the default probabilities of all surviving subsidiaries. The total dividend problem is formulated for the insurance group and we reveal for the first time that the optimal singular dividend strategy is still of the barrier type. Furthermore, we show that the optimal barrier for each subsidiary is modulated by the current default state, namely how many and which subsidiaries have defaulted will determine the dividend threshold of each surviving subsidiary. These interesting conclusions are based on the analysis of the associated recursive system of Hamilton-Jacobi-Bellman variational inequalities (HJBVIs). The existence of the classical solution is established and the proof of the verification theorem is provided. For the case of two subsidiaries, the value function and optimal barriers of dividend are given in analytical forms . Numerical examples are also presented to illustrate some economic insights .
This paper studies the optimal dividend for a multi-line insurance group, in which each subsidiary runs a product line and is exposed to some external credit risk. The credit default contagion is considered in the sense that one default event may increase the default probabilities of all surviving subsidiaries. The total dividend problem is considered for the insurance group and we reveal that the optimal singular dividend strategy is still of the barrier type. Furthermore, we show that the optimal barrier of each subsidiary is modulated by the default state, namely how many and which subsidiaries have defaulted will determine the dividend threshold of each surviving subsidiary. These interesting conclusions are based on the analysis of the associated recursive system of Hamilton-Jacobi-Bellman variational inequalities (HJBVIs). The existence of the classical solution is established and the proof of the verification theorem is provided. In the case of two subsidiaries, the value function and optimal barriers are given in analytical forms , allowing us to conclude that the optimal barrier of one subsidiary decreases if the other subsidiary defaults .
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