Dividend maximization in a hidden Markov switching model

Michaela Szölgyenyi

Publication: Scientific journalJournal articlepeer-review


In this paper we study the valuation problem of an insurance company by maximizing the expected discounted future dividend payments in a model with partial information that allows for a changing economic environment. The surplus process is modeled as a Brownian motion with drift. This drift depends on an underlying Markov chain the current state of which is assumed to be unobservable. The different states of the Markov chain thereby represent different phases of the economy. We apply results from filtering theory to overcome uncertainty and then we give an analytic characterization of the optimal value function. Finally, we present a numerical study covering various scenarios to get a clear picture of how dividends should be paid out.
Original languageEnglish
Pages (from-to)143 - 158
JournalStatistics and Risk Modeling
Issue number3-4
Publication statusPublished - 2015

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 401117 Viticulture
  • 101024 Probability theory
  • 101007 Financial mathematics

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