Title: Optimal dividendswith random profitability

Speaker: Prof Mete Soner Chair, Department of Mathematics, ETH Zürich.

Date: Nov 15, 2018, Thursday, 4:45pm-5:30pm

Venue: 览秀楼105

Abstract:

We study theclassical the optimal dividend problem of a firm. The cash flow of the companyis modeled as in the classical book of Dixit and Pindyck.  Namely, the instantaneous expected revenuerate, which we call the firm profitability, is a mean reverting processes andthe revenue process is also subject to noise.  In the simpler problem, the only financial decision taken by the firm isthe size and the timing of the dividends and the bankruptcy occurs when thecash level is below a certain threshold. In a similar paper, Anderson andCarverhill (RFS, 2012) this threshold is defined as the cash level below whichdebt obligations cannot be met.

  Weinvestigate the corresponding stochastic optimal control problem through thedynamic programming approach.  We showthat if the profitability falls below a certain value, then strategicbankruptcy is optimal. Also for negative but small values of profitability thisstrategy would still be optimal, if the total cash holdings is not large. Forother values of profitability a positive target cash level is set as adecreasing function of profitability.

 This is joint work with, Max Reppen andJean-Charles Rochet.

BriefCV of Speaker:  

Prof Soner is aprofessor of mathematics at the Swiss Federal Institute of Technology in Zurichand the Chair of the Department of Mathematics. He also hold a Senior Chair atthe Swiss FinanceInstitute.

 He is an associate editor for SIAM Journal ofFinancial Mathematics, Interfaces and Free Boundaries, Mathematics andFinancial Economics (MAFE) and the ESAIM Journal of Control, Optimization andCalculus of Variations (COCV).

In 2008, he wasawarded a European Research Council Advanced Project titledMathematical Methods for Financial Risk Management. During 2011-2016, he hasbeen the Executive Secretary of the Bachelier Finance Society. In 2014, he received an Alexander von Humbolt Foundation Research Award. In2015, he was elected as a SIAM Fellow.