Optimal dividends in the dual model

The optimal dividend problem proposed by de Finetti [de Finetti, B., 1957. Su un’impostazione alternativa della teoria collettiva del rischio. In: Transactions of the XVth International Congress of Actuaries, vol. 2. pp. 433–443] is to find the dividend-payment strategy that maximizes the expected discounted value of dividends which are paid to the shareholders until the company is ruined or bankrupt. In this paper, it is assumed that the surplus or shareholders’ equity is a Lévy process which is skip-free downwards; such a model might be appropriate for a company that specializes in inventions and discoveries. In this model, the optimal strategy is a barrier strategy. Hence the problem is to determine b ∗ , the optimal level of the dividend barrier. A key tool is the method of Laplace transforms. A variety of numerical examples are provided. It is also shown that if the initial surplus is b ∗ , the expectation of the discounted dividends until ruin is the present value of a perpetuity with the payment rate being the drift of the surplus process.