Numerical solutions of optimal risk control and dividend optimization policies under a generalized singular control formulation

Zhuo Jin*, G. Yin, Chao Zhu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

34 Citations (Scopus)

Abstract

This paper develops numerical methods for finding optimal dividend pay-out and reinsurance policies. A generalized singular control formulation of surplus and discounted payoff function is introduced, where the surplus is modeled by a regime-switching process subject to both regular and singular controls. To approximate the value function and optimal controls, Markov chain approximation techniques are used to construct a discrete-time controlled Markov chain. The proofs of the convergence of the approximation sequence to the surplus process and the value function are given. Examples of proportional and excess-of-loss reinsurance are presented to illustrate the applicability of numerical methods.

Original languageEnglish
Pages (from-to)1489-1501
Number of pages13
JournalAutomatica
Volume48
Issue number8
DOIs
Publication statusPublished - Aug 2012
Externally publishedYes

Keywords

  • Dividend policy
  • Markov chain approximation
  • Numerical method
  • Regime switching
  • Reinsurance
  • Singular control

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