Stochastic Control of Dividends with a Drawdown Penalty
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arXiv
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| Format: | Preprint |
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2025
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| _version_ | 1866917060750082048 |
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| author | Dudziak, Kira Schmidli, Hanspeter |
| author_facet | Dudziak, Kira Schmidli, Hanspeter |
| contents | We consider a diffusion risk model where dividends are paid at rate $U(t) \in [0, u_0]$. We are interested in maximising the dividend payments under a drawdown constraint, that is, we penalise a drawdown size larger than a level $d > 0$. We show that the optimal dividend rate $U(t)$ is either zero or the maximal rate $u_0$ and determine the optimal strategy. Moreover, we derive an explicit expression for the value function by solving a system of differential equations. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2510_25494 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Stochastic Control of Dividends with a Drawdown Penalty Dudziak, Kira Schmidli, Hanspeter Optimization and Control We consider a diffusion risk model where dividends are paid at rate $U(t) \in [0, u_0]$. We are interested in maximising the dividend payments under a drawdown constraint, that is, we penalise a drawdown size larger than a level $d > 0$. We show that the optimal dividend rate $U(t)$ is either zero or the maximal rate $u_0$ and determine the optimal strategy. Moreover, we derive an explicit expression for the value function by solving a system of differential equations. |
| title | Stochastic Control of Dividends with a Drawdown Penalty |
| topic | Optimization and Control |
| url | https://arxiv.org/abs/2510.25494 |