Optimization of risk policy and dividends with fixed transaction costs under interest rate

Abstract

In this paper, we consider the dividend optimization problem for a financial corporation with transaction costs. Besides the dividend control, the financial corporation takes proportional reinsurance to reduce risk and the surplus earns interest at the constant force ρ > 0. Because of the presence of fixed transaction costs, the problem becomes a mixed classical-impulse stochastic control problem. We solve this problem explicitly and construct the value function together with the optimal policy.

Keywords

Mixed classical-impulse control / impulse control / dividends / quasi-variational inequality / transaction costs

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