Optimal dividend and issuance of equity policies in the presence of proportional costs

By Arne Løkka, Mihail Zervos. 2008

132 citations recorded by the source corpus.

We consider three optimisation problems faced by a company that can control its liquid reserves by paying dividends and by issuing new equity. The first of these problems involves no issuance of new equity and has been considered by several authors in the literature. The second one aims at maximising the expected discounted dividend payments minus the expected discounted costs of issuing new equity over all strategies associated with positive reserves at all times. The third problem has the same objective as the second one, but with no constraints on the reserves. Assuming proportional issuance of equity costs, we derive closed form solutions and we completely characterise the optimal strategies. We also provide a relationship between the three problems.

Subfields: Finance, Management Information Systems, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/130f7d1339d969a0f434cac1d55e1bd21cf14fb3

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Finance

In Management Information Systems

In Management Science and Operations Research

Citations in the corpus

Optimal reinsurance and dividend for a diffusion model with capital injection: Variance premium principle (2012, methodology): “Motivated by the work of Løkka and Zervos (2008) and He and Liang (2008), we study the optimal capital injection and dividend problem with proportional reinsurance under the variance premium principle.”
On the optimal dividend problem for a spectrally negative Lévy process (2007, background): “Several ways to combine dividend and ruin considerations are possible; here, we choose one studied in a Brownian motion setting by Harrison and Taylor [13] and Løkka and Zervos [19] involving bail-out loans to prevent ruin, over an infinite horizon.”
Optimal Dividends and Capital Injections in the Dual Model with Diffusion (2010, unknown): “It follows from results in the discrete-time setting of Miyasawa (1962) and Takeuchi (1962) that the barrier strategy should be the optimal dividend strategy in the dual model, although it has yet to be formally proven.”