American Institute of Mathematical Sciences

Advanced
doi: 10.3934/jimo.2020087

Equilibrium periodic dividend strategies with non-exponential discounting for spectrally positive Lévy processes

Wei Zhong 1, , Yongxia Zhao 1,, and  Ping Chen 2,

1. 

School of Statistics, Qufu Normal University, Qufu, Shandong, 273165, China
2. 

Faculty of Business and Economics, The University of Melbourne, Melbourne, VIC 3010, Australia

* Corresponding author: Yongxia Zhao

Received  October 2019 Revised  December 2019 Published  April 2020

In the dual risk model, we study the periodic dividend problem with a non-exponential discount function which results in a time-inconsistent control problem. Viewing it within the game theoretic framework, we extend the Hamilton-Jacobi-Bellman (HJB) system of equations from the fixed terminal to the time of ruin and derive the verification theorem, and we generalize the theory of classical optimal periodic dividend. Under two special non-exponential discount functions, we obtain the closed-form expressions of equilibrium strategy and the corresponding equilibrium value function in a compound Poisson dual model. Finally, some numerical examples are presented to illustrate the impact of some parameters.

Keywords: Time-inconsistent optimal control, Non-exponential discounting, Equilibrium periodic dividend strategy, Extended HJB system of equations, Lévy process.
Mathematics Subject Classification: Primary: 93E20, 91G80; Secondary: 60G51.
Citation: Wei Zhong, Yongxia Zhao, Ping Chen. Equilibrium periodic dividend strategies with non-exponential discounting for spectrally positive Lévy processes. Journal of Industrial & Management Optimization, doi: 10.3934/jimo.2020087
References:
[1]

I. Alia, A non-exponential discounting time-inconsistent stochastic optimal control problem for jump-diffusion, Mathematical Control and Related Fields, 9 (2019), 541-570.  doi: 10.3934/mcrf.2019025.  Google Scholar

[2] D. Applebaum, Lévy processes and Stochastic Calculus, 2$^nd$ edition, Cambridge university press, 2009.  doi: 10.1017/CBO9780511755323.  Google Scholar
[3]

S. Asmussen and M. Taksar, Controlled diffusion models for optimal dividend pay-out, Insurance: Mathematics and Economics, 20 (1997), 1-15.  doi: 10.1016/S0167-6687(96)00017-0.  Google Scholar

[4]

B. Avanzi, E. C. K. Cheung, B. Wong and J.-K. Woo, On a periodic dividend barrier strategy in the dual model with continuous monitoring of solvency, Insurance: Mathematics and Economics, 52 (2013), 98-113.  doi: 10.1016/j.insmatheco.2012.10.008.  Google Scholar

[5]

B. Avanzi and H. U. Gerber, Optimal dividends in the dual model with diffusion, ASTIN Bulletin, 38 (2008), 653-667.  doi: 10.1017/S0515036100015324.  Google Scholar

[6]

B. Avanzi, V. Tu and B. Wong, On optimal periodic dividend strategies in the dual model with diffusion, Insurance: Mathematics and Economics, 55 (2014), 210-224.  doi: 10.1016/j.insmatheco.2014.01.005.  Google Scholar

[7]

O. E. Barndorff-Nielsen, T. Mikosch and S. I. Resnick, Lévy Processes: Theory and Applications, Springer Science and Business Media, New York, 2012. Google Scholar

[8]

F. Biagini, Y. Hu, B. Øksendal and T. Zhang, Stochastic Calculus for Fractional Brownian Motion and Applications, Springer Science and Business Media, London, 2008. doi: 10.1007/978-1-84628-797-8.  Google Scholar

[9]

T. Björk, M. Khapko and A. Murgoci, On time-inconsistent stochastic control in continuous time, Finance and Stochastics, 21 (2017), 331-360.  doi: 10.1007/s00780-017-0327-5.  Google Scholar

[10]

T. Björk and A. Murgoci, A General Theory of Markovian Time Inconsistent Stochastic Control Problems, Working paper, Stockholm School of Economics, 2010. Google Scholar

[11]

S. Chen, Z. Li and Y. Zeng, Optimal dividend strategy for a general diffusion process with time-inconsistent preferences and ruin penalty, SIAM Journal on Financial Mathematics, 9 (2018), 274-314.  doi: 10.1137/16M1088983.  Google Scholar

[12]

S. Chen, X. Wang, Y. Deng and Y. Zeng, Optimal dividend-financing strategies in a dual risk model with time-inconsistent preferences, Insurance: Mathematics and Economics, 67 (2016), 27-37.  doi: 10.1016/j.insmatheco.2015.11.005.  Google Scholar

[13]

A. Chunxiang, Z. Li and F. Wang, Optimal investment strategy under time-inconsistent preferences and high-water mark contract, Operations Research Letters, 44 (2016), 212-218.  doi: 10.1016/j.orl.2015.12.013.  Google Scholar

[14]

H. Dong, C. Yin and H. Dai, Spectrally negative Lévy risk model under Erlangized barrier strategy, Journal of Computational and Applied Mathematics, 351 (2019), 101-116.  doi: 10.1016/j.cam.2018.11.001.  Google Scholar

[15]

B. De Finetti, Su un'impostazione alternativa della teoria collectiva del rischio, Transactions of the 15th International Congress of Actuaries, 2 (1957), 433-443.   Google Scholar

[16]

I. Ekeland and T. A. Pirvu, Investment and consumption without commitment, Mathematics and Financial Economics, 2 (2008), 57-86.  doi: 10.1007/s11579-008-0014-6.  Google Scholar

[17]

C. Foucart, P. S. Li and X. Zhou, Time-changed spectrally positive Lévy processes starting from infinity, preprint, arXiv: 1901.10689. Google Scholar

[18]

S. R. Grenadier and N. Wang, Investment under uncertainty and time-inconsistent preferences, NBER Working Paper Series, (2006), 1–49. doi: 10.3386/w12042.  Google Scholar

[19]

F. C. Klebaner, Introduction to Stochastic Calculus with Applications, 3$^{nd}$ edition, World Scientific Publishing Company, 1999. doi: 10.1142/p821.  Google Scholar

[20]

A. E. Kyprianou, Introductory Lectures on Fluctuations of Lévy Processes with Applications, Springer Science and Business Media, Berlin, 2006. doi: 10.1007/978-3-540-31343-4.  Google Scholar

[21]

Y. Li, Z. Li and Y. Zeng, Equilibrium dividend strategy with non-exponential discounting in a dual model, Journal of Optimization Theory and Applications, 168 (2016), 699-722.  doi: 10.1007/s10957-015-0742-8.  Google Scholar

[22]

G. Loewenstein and D. Prelec, Anomalies in intertemporal choice: Evidence and an interpretation, The Quarterly Journal of Economics, 107 (1992), 578-596.  doi: 10.1017/CBO9780511803475.034.  Google Scholar

[23]

E. G. J. Luttmer and T. Mariotti, Subjective discounting in an exchange economy, Journal of Political Economy, 111 (2003), 959-989.  doi: 10.1086/376954.  Google Scholar

[24]

J. L. Pérez and K. Yamazaki, On the optimality of periodic barrier strategies for a spectrally positive Lévy process, Insurance: Mathematics and Economics, 77 (2017), 1-13.  doi: 10.1016/j.insmatheco.2017.08.001.  Google Scholar

[25]

W. Schoutens, Lévy processes in Finance: Pricing Financial Derivatives, Wiley, New York, 2003. doi: 10.1002/0470870230.  Google Scholar

[26]

R. Thaler, Some empirical evidence on dynamic inconsistency, Insurance: Mathematics and Economics, 8 (1981), 201-207.  doi: 10.1016/0165-1765(81)90067-7.  Google Scholar

[27]

Y. Tian, Optimal capital structure and investment decisions under time-inconsistent preferences, Journal of Economic Dynamics and Control, 65 (2016), 83-104.  doi: 10.1016/j.jedc.2016.02.001.  Google Scholar

[28]

C. Yin, Y. Wen and Y. Zhao, On the optimal dividend problem for a spectrally positive Lévy process, ASTIN Bulletin, 44 (2014), 635-651.  doi: 10.1017/asb.2014.12.  Google Scholar

[29]

Q. Zhao, J. Wei and R. Wang, On dividend strategies with non-exponential discounting, Insurance: Mathematics and Economics, 58 (2014), 1-13.  doi: 10.1016/j.insmatheco.2014.06.001.  Google Scholar

[30]

Y. Zhao, P. Chen and H. Yang, Optimal periodic dividend and capital injection problem for spectrally positive Lévy processes, Insurance: Mathematics and Economics, 74 (2017), 135-146.  doi: 10.1016/j.insmatheco.2017.03.006.  Google Scholar

[31]

Y. Zhao, R. Wang and D. Yao, Optimal dividend and equity issuance in the perturbed dual model under a penalty for ruin, Communications in Statistics-Theory and Methods, 45 (2016), 365–384. doi: 10.1080/03610926.2013.810269.  Google Scholar

[32]

Y. Zhao, R. Wang, D. Yao and P. Chen, Optimal dividends and capital injections in the dual model with a random time horizon, Journal of Optimization Theory and Applications, 167 (2015), 272-295.  doi: 10.1007/s10957-014-0653-0.  Google Scholar

show all references

References:
[1]

I. Alia, A non-exponential discounting time-inconsistent stochastic optimal control problem for jump-diffusion, Mathematical Control and Related Fields, 9 (2019), 541-570.  doi: 10.3934/mcrf.2019025.  Google Scholar

[2] D. Applebaum, Lévy processes and Stochastic Calculus, 2$^nd$ edition, Cambridge university press, 2009.  doi: 10.1017/CBO9780511755323.  Google Scholar
[3]

S. Asmussen and M. Taksar, Controlled diffusion models for optimal dividend pay-out, Insurance: Mathematics and Economics, 20 (1997), 1-15.  doi: 10.1016/S0167-6687(96)00017-0.  Google Scholar

[4]

B. Avanzi, E. C. K. Cheung, B. Wong and J.-K. Woo, On a periodic dividend barrier strategy in the dual model with continuous monitoring of solvency, Insurance: Mathematics and Economics, 52 (2013), 98-113.  doi: 10.1016/j.insmatheco.2012.10.008.  Google Scholar

[5]

B. Avanzi and H. U. Gerber, Optimal dividends in the dual model with diffusion, ASTIN Bulletin, 38 (2008), 653-667.  doi: 10.1017/S0515036100015324.  Google Scholar

[6]

B. Avanzi, V. Tu and B. Wong, On optimal periodic dividend strategies in the dual model with diffusion, Insurance: Mathematics and Economics, 55 (2014), 210-224.  doi: 10.1016/j.insmatheco.2014.01.005.  Google Scholar

[7]

O. E. Barndorff-Nielsen, T. Mikosch and S. I. Resnick, Lévy Processes: Theory and Applications, Springer Science and Business Media, New York, 2012. Google Scholar

[8]

F. Biagini, Y. Hu, B. Øksendal and T. Zhang, Stochastic Calculus for Fractional Brownian Motion and Applications, Springer Science and Business Media, London, 2008. doi: 10.1007/978-1-84628-797-8.  Google Scholar

[9]

T. Björk, M. Khapko and A. Murgoci, On time-inconsistent stochastic control in continuous time, Finance and Stochastics, 21 (2017), 331-360.  doi: 10.1007/s00780-017-0327-5.  Google Scholar

[10]

T. Björk and A. Murgoci, A General Theory of Markovian Time Inconsistent Stochastic Control Problems, Working paper, Stockholm School of Economics, 2010. Google Scholar

[11]

S. Chen, Z. Li and Y. Zeng, Optimal dividend strategy for a general diffusion process with time-inconsistent preferences and ruin penalty, SIAM Journal on Financial Mathematics, 9 (2018), 274-314.  doi: 10.1137/16M1088983.  Google Scholar

[12]

S. Chen, X. Wang, Y. Deng and Y. Zeng, Optimal dividend-financing strategies in a dual risk model with time-inconsistent preferences, Insurance: Mathematics and Economics, 67 (2016), 27-37.  doi: 10.1016/j.insmatheco.2015.11.005.  Google Scholar

[13]

A. Chunxiang, Z. Li and F. Wang, Optimal investment strategy under time-inconsistent preferences and high-water mark contract, Operations Research Letters, 44 (2016), 212-218.  doi: 10.1016/j.orl.2015.12.013.  Google Scholar

[14]

H. Dong, C. Yin and H. Dai, Spectrally negative Lévy risk model under Erlangized barrier strategy, Journal of Computational and Applied Mathematics, 351 (2019), 101-116.  doi: 10.1016/j.cam.2018.11.001.  Google Scholar

[15]

B. De Finetti, Su un'impostazione alternativa della teoria collectiva del rischio, Transactions of the 15th International Congress of Actuaries, 2 (1957), 433-443.   Google Scholar

[16]

I. Ekeland and T. A. Pirvu, Investment and consumption without commitment, Mathematics and Financial Economics, 2 (2008), 57-86.  doi: 10.1007/s11579-008-0014-6.  Google Scholar

[17]

C. Foucart, P. S. Li and X. Zhou, Time-changed spectrally positive Lévy processes starting from infinity, preprint, arXiv: 1901.10689. Google Scholar

[18]

S. R. Grenadier and N. Wang, Investment under uncertainty and time-inconsistent preferences, NBER Working Paper Series, (2006), 1–49. doi: 10.3386/w12042.  Google Scholar

[19]

F. C. Klebaner, Introduction to Stochastic Calculus with Applications, 3$^{nd}$ edition, World Scientific Publishing Company, 1999. doi: 10.1142/p821.  Google Scholar

[20]

A. E. Kyprianou, Introductory Lectures on Fluctuations of Lévy Processes with Applications, Springer Science and Business Media, Berlin, 2006. doi: 10.1007/978-3-540-31343-4.  Google Scholar

[21]

Y. Li, Z. Li and Y. Zeng, Equilibrium dividend strategy with non-exponential discounting in a dual model, Journal of Optimization Theory and Applications, 168 (2016), 699-722.  doi: 10.1007/s10957-015-0742-8.  Google Scholar

[22]

G. Loewenstein and D. Prelec, Anomalies in intertemporal choice: Evidence and an interpretation, The Quarterly Journal of Economics, 107 (1992), 578-596.  doi: 10.1017/CBO9780511803475.034.  Google Scholar

[23]

E. G. J. Luttmer and T. Mariotti, Subjective discounting in an exchange economy, Journal of Political Economy, 111 (2003), 959-989.  doi: 10.1086/376954.  Google Scholar

[24]

J. L. Pérez and K. Yamazaki, On the optimality of periodic barrier strategies for a spectrally positive Lévy process, Insurance: Mathematics and Economics, 77 (2017), 1-13.  doi: 10.1016/j.insmatheco.2017.08.001.  Google Scholar

[25]

W. Schoutens, Lévy processes in Finance: Pricing Financial Derivatives, Wiley, New York, 2003. doi: 10.1002/0470870230.  Google Scholar

[26]

R. Thaler, Some empirical evidence on dynamic inconsistency, Insurance: Mathematics and Economics, 8 (1981), 201-207.  doi: 10.1016/0165-1765(81)90067-7.  Google Scholar

[27]

Y. Tian, Optimal capital structure and investment decisions under time-inconsistent preferences, Journal of Economic Dynamics and Control, 65 (2016), 83-104.  doi: 10.1016/j.jedc.2016.02.001.  Google Scholar

[28]

C. Yin, Y. Wen and Y. Zhao, On the optimal dividend problem for a spectrally positive Lévy process, ASTIN Bulletin, 44 (2014), 635-651.  doi: 10.1017/asb.2014.12.  Google Scholar

[29]

Q. Zhao, J. Wei and R. Wang, On dividend strategies with non-exponential discounting, Insurance: Mathematics and Economics, 58 (2014), 1-13.  doi: 10.1016/j.insmatheco.2014.06.001.  Google Scholar

[30]

Y. Zhao, P. Chen and H. Yang, Optimal periodic dividend and capital injection problem for spectrally positive Lévy processes, Insurance: Mathematics and Economics, 74 (2017), 135-146.  doi: 10.1016/j.insmatheco.2017.03.006.  Google Scholar

[31]

Y. Zhao, R. Wang and D. Yao, Optimal dividend and equity issuance in the perturbed dual model under a penalty for ruin, Communications in Statistics-Theory and Methods, 45 (2016), 365–384. doi: 10.1080/03610926.2013.810269.  Google Scholar

[32]

Y. Zhao, R. Wang, D. Yao and P. Chen, Optimal dividends and capital injections in the dual model with a random time horizon, Journal of Optimization Theory and Applications, 167 (2015), 272-295.  doi: 10.1007/s10957-014-0653-0.  Google Scholar

Figure 1.  Influence of parameters $ \rho_1 $ and $ \rho_2 $ to equilibrium value function and equilibrium dividend barrier
Figure Options

Download full-size image

Download as PowerPoint slide

Figure 2.  Contour plot of $ c $ as a function of $ \beta $ and $ \lambda $
Figure Options

Download full-size image

Download as PowerPoint slide

Figure 3.  Influence of parameters $ \eta $ and $ c $ to equilibrium value function
Figure Options

Download full-size image

Download as PowerPoint slide

Table 1.  Influences of $ \beta $ and $ \lambda $ on $ b $
$ c=0.7 $ $ \gamma=1 $ $ \omega_1=0.7 $ $ \rho_1=0.1 $ $ \rho_2=0.3 $
$ \beta=1.5 $ $ \lambda=1.5 $
$ \lambda $$ \uparrow $ 1.3 1.8 $ \mathit{\boldsymbol{2.1920}} $ 3 $ \beta $$ \uparrow $ 0.8 1 1.3 1.7
$ b $$ \curvearrowright $ 0.5606 1.5520 $ \mathit{\boldsymbol{1.6794}} $ 1.5256 $ \downarrow $ 2.2197 1.9983 1.5353 0.6472
Table Options

Download as excel

$ c=0.7 $ $ \gamma=1 $ $ \omega_1=0.7 $ $ \rho_1=0.1 $ $ \rho_2=0.3 $
$ \beta=1.5 $ $ \lambda=1.5 $
$ \lambda $$ \uparrow $ 1.3 1.8 $ \mathit{\boldsymbol{2.1920}} $ 3 $ \beta $$ \uparrow $ 0.8 1 1.3 1.7
$ b $$ \curvearrowright $ 0.5606 1.5520 $ \mathit{\boldsymbol{1.6794}} $ 1.5256 $ \downarrow $ 2.2197 1.9983 1.5353 0.6472
[1]

Ishak Alia. A non-exponential discounting time-inconsistent stochastic optimal control problem for jump-diffusion. Mathematical Control & Related Fields, 2019, 9 (3) : 541-570. doi: 10.3934/mcrf.2019025
[2]

Jiongmin Yong. Time-inconsistent optimal control problems and the equilibrium HJB equation. Mathematical Control & Related Fields, 2012, 2 (3) : 271-329. doi: 10.3934/mcrf.2012.2.271
[3]

Haiyang Wang, Zhen Wu. Time-inconsistent optimal control problem with random coefficients and stochastic equilibrium HJB equation. Mathematical Control & Related Fields, 2015, 5 (3) : 651-678. doi: 10.3934/mcrf.2015.5.651
[4]

Jiaqin Wei, Danping Li, Yan Zeng. Robust optimal consumption-investment strategy with non-exponential discounting. Journal of Industrial & Management Optimization, 2020, 16 (1) : 207-230. doi: 10.3934/jimo.2018147
[5]

Ishak Alia. Time-inconsistent stochastic optimal control problems: A backward stochastic partial differential equations approach. Mathematical Control & Related Fields, 2019, 0 (0) : 0-0. doi: 10.3934/mcrf.2020020
[6]

Jiaqin Wei. Time-inconsistent optimal control problems with regime-switching. Mathematical Control & Related Fields, 2017, 7 (4) : 585-622. doi: 10.3934/mcrf.2017022
[7]

Jiongmin Yong. A deterministic linear quadratic time-inconsistent optimal control problem. Mathematical Control & Related Fields, 2011, 1 (1) : 83-118. doi: 10.3934/mcrf.2011.1.83
[8]

Jingzhen Liu, Liyuan Lin, Ka Fai Cedric Yiu, Jiaqin Wei. Non-exponential discounting portfolio management with habit formation. Mathematical Control & Related Fields, 2019, 0 (0) : 0-0. doi: 10.3934/mcrf.2020019
[9]

Guangjun Shen, Xueying Wu, Xiuwei Yin. Stabilization of stochastic differential equations driven by G-Lévy process with discrete-time feedback control. Discrete & Continuous Dynamical Systems - B, 2017, 22 (11) : 0-0. doi: 10.3934/dcdsb.2020133
[10]

Zhimin Zhang, Eric C. K. Cheung. A note on a Lévy insurance risk model under periodic dividend decisions. Journal of Industrial & Management Optimization, 2018, 14 (1) : 35-63. doi: 10.3934/jimo.2017036
[11]

Jiangyan Peng, Dingcheng Wang. Asymptotics for ruin probabilities of a non-standard renewal risk model with dependence structures and exponential Lévy process investment returns. Journal of Industrial & Management Optimization, 2017, 13 (1) : 155-185. doi: 10.3934/jimo.2016010
[12]

Yongxia Zhao, Rongming Wang, Chuancun Yin. Optimal dividends and capital injections for a spectrally positive Lévy process. Journal of Industrial & Management Optimization, 2017, 13 (1) : 1-21. doi: 10.3934/jimo.2016001
[13]

Hongjun Gao, Fei Liang. On the stochastic beam equation driven by a Non-Gaussian Lévy process. Discrete & Continuous Dynamical Systems - B, 2014, 19 (4) : 1027-1045. doi: 10.3934/dcdsb.2014.19.1027
[14]

Qingmeng Wei, Zhiyong Yu. Time-inconsistent recursive zero-sum stochastic differential games. Mathematical Control & Related Fields, 2018, 8 (3&4) : 1051-1079. doi: 10.3934/mcrf.2018045
[15]

Jérôme Buzzi, Véronique Maume-Deschamps. Decay of correlations on towers with non-Hölder Jacobian and non-exponential return time. Discrete & Continuous Dynamical Systems - A, 2005, 12 (4) : 639-656. doi: 10.3934/dcds.2005.12.639
[16]

Karel Kadlec, Bohdan Maslowski. Ergodic boundary and point control for linear stochastic PDEs driven by a cylindrical Lévy process. Discrete & Continuous Dynamical Systems - B, 2017, 22 (11) : 0-0. doi: 10.3934/dcdsb.2020137
[17]

Yong-Kum Cho. On the Boltzmann equation with the symmetric stable Lévy process. Kinetic & Related Models, 2015, 8 (1) : 53-77. doi: 10.3934/krm.2015.8.53
[18]

John A. D. Appleby, Alexandra Rodkina, Henri Schurz. Pathwise non-exponential decay rates of solutions of scalar nonlinear stochastic differential equations. Discrete & Continuous Dynamical Systems - B, 2006, 6 (4) : 667-696. doi: 10.3934/dcdsb.2006.6.667
[19]

Qian Zhao, Rongming Wang, Jiaqin Wei. Time-inconsistent consumption-investment problem for a member in a defined contribution pension plan. Journal of Industrial & Management Optimization, 2016, 12 (4) : 1557-1585. doi: 10.3934/jimo.2016.12.1557
[20]

Xu Chen, Jianping Wan. Integro-differential equations for foreign currency option prices in exponential Lévy models. Discrete & Continuous Dynamical Systems - B, 2007, 8 (3) : 529-537. doi: 10.3934/dcdsb.2007.8.529

2018 Impact Factor: 1.025

Tools

Metrics

  • PDF downloads (26)
  • HTML views (60)
  • Cited by (0)

Other articles
by authors

[Back to Top]

Copyright © 2020 American Institute of Mathematical Sciences