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Finite-time dividend-ruin models

Authors Leung, Kwai Sun
Kwok, Yue Kuen View this author's profile
Leung, Seng Yuen
Issue Date 2008
Source Insurance MATHEMATICS & Economics , v. 42, (1), 2008, FEB, p. 154-162
Summary We consider the finite-time horizon dividend-ruin model where the firm pays out dividends to its shareholders according to a dividend-barrier strategy and becomes ruined when the firm's asset value falls below the default threshold. The asset value process is modeled as a restricted Geometric Brownian process with an upper reflecting (dividend) barrier and a lower absorbing (ruin) barrier. Analytical solutions to the value function of the restricted asset value process are provided. We also solve for the survival probability and the expected present value of future dividend payouts over a given time horizon. The sensitivities of the firm asset value and dividend payouts to the dividend barrier, volatility of the firm asset value and firm's credit quality are also examined. (C) 2007 Elsevier B.V. All rights reserved.
ISSN 0167-6687
Rights Insurance: Mathematics and Economics © copyright (2008) Elsevier. The Journal's web site is located at'
Language English
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