In this paper we propose and solve an optimal dividend problem with capital injections over a finite time horizon. The surplus dynamics obeys a linearly controlled drifted Brownian motion that is reflected at zero , dividends give rise to time-dependent instantaneous marginal profits, whereas capital injections are subject to time-dependent instantaneous marginal costs. The aim is to maximize the sum of a liquidation value at terminal time and of the total expected profits from dividends, net of the total expected costs for capital injections. Inspired by the study in \mbox{%DIFAUXCMD EKK1989 on reflected follower problems, we relate the optimal dividend problem with capital injections to an optimal stopping problem for a drifted Brownian motion that is absorbed at zero . We show that whenever the optimal stopping rule is triggered by a time-dependent boundary, the value function of the optimal stopping problem gives the derivative of the value function of the optimal dividend problem. Moreover, the optimal dividends' distribution strategy is also triggered by the moving boundary of the associated stopping problem. The properties of this boundary are then investigated in a case study in which instantaneous marginal profits and costs from dividends and capital injections are constants discounted at a constant rate.
In this paper we propose and solve an optimal dividend problem with capital injections over a finite time horizon. The surplus dynamics obeys a linearly controlled drifted Brownian motion that is reflected at the origin , dividends give rise to time-dependent instantaneous marginal profits, whereas capital injections are subject to time-dependent instantaneous marginal costs. The aim is to maximize the sum of a liquidation value at terminal time and of the total expected profits from dividends, net of the total expected costs for capital injections. Inspired by the study of El Karoui and Karatzas (1989) on reflected follower problems, we relate the optimal dividend problem with capital injections to an optimal stopping problem for a drifted Brownian motion that is absorbed at the origin . We show that whenever the optimal stopping rule is triggered by a time-dependent boundary, the value function of the optimal stopping problem gives the derivative of the value function of the optimal dividend problem. Moreover, the optimal dividend strategy is also triggered by the moving boundary of the associated stopping problem. The properties of this boundary are then investigated in a case study in which instantaneous marginal profits and costs from dividends and capital injections are constants discounted at a constant rate.
R
zero
the origin
R
in \mbox{%DIFAUXCMD EKK1989
of El Karoui and Karatzas (1989)
R
zero
the origin
R
dividends' distribution
dividend