Optimal Dividend Policies with Random Profitability

@article{Reppen2019OptimalDP,
  title={Optimal Dividend Policies with Random Profitability},
  author={A. Max Reppen and Jean-Charles Rochet and Halil Mete Soner},
  journal={Wiley-Blackwell: Mathematical Finance},
  year={2019}
}
We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flow drifts, including Ornstein–Uhlenbeck and CIR processes, are considered. We provide rigorous proofs of continuity of the value function, whence dynamic programming, as well as uniqueness of the solution to the Hamilton–Jacobi–Bellman equation, and study its qualitative properties both analytically and… Expand
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Optimal Dividend Policies with Random Profitability
We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flowExpand
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Motivated by empirical evidence and economic arguments, we assume that the cash reservoir of a financial corporation follows a mean reverting process. The firm must decide the optimal dividendExpand
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Abstract In the absence of investment and dividend payments, the surplus is modeled by a Brownian motion. But now assume that the surplus earns investment income at a constant rate of creditExpand
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This work considers a company whose cumulative net revenues evolve as a Brownian motion with positive drift that is modulated by a finite state Markov chain, and model the discount rate as a deterministic function of the current state of the chain. Expand
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In this paper the solutions to several variants of the so-called dividend-distribution problem in a multi-dimensional, diffusion setting are studied. In a nutshell, the manager of a firm must balanceExpand
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Abstract A firm whose net earnings are uncertain, and that is subject to the risk of bankruptcy, must choose between paying dividends and retaining earnings in a liquid reserve. Also, differentExpand
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We solve for a firm's optimal cash holding policy within a continuous time, contingent claims framework using dividends, short-term borrowing, and equity issues as controls assuming mean reversion ofExpand
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Several recent papers have studied the impact of macroeconomic shocks on the financial policies of firms. However, they only consider the case where these macroeconomic shocks affect theExpand
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We find the optimal dividend strategy in a diffusion risk model under a penalty for ruin, as in Thonhauser and Albrecher (2007), although we allow for both a positive and a negative penalty.Expand
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