A Non-stationary Model of Dividend Distribution in a Stochastic Interest-Rate Setting
2016
In this paper the solutions to several variants of the so-called dividend-distribution problem in a multi-dimensional, diffusion setting are studied. In a nutshell, the manager of a firm must balance the retention of earnings (so as to ward off bankruptcy and earn interest) and the distribution of dividends (so as to please the shareholders). A dynamic-programming approach is used, where the state variables are the current levels of cash reserves and of the stochastic short-rate, as well as time. This results in a family of Hamilton---Jacobi---Bellman variational inequalities whose solutions must be approximated numerically. To do so, a finite element approximation and a time-marching scheme are employed.
Keywords:
- Correction
- Source
- Cite
- Save
- Machine Reading By IdeaReader
45
References
11
Citations
NaN
KQI