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arXiv · 2510.25494

Stochastic Control of Dividends with a Drawdown Penalty

Kira Dudziak·Hanspeter Schmidli
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Abstract

We consider a diffusion risk model where dividends are paid at rate $U(t) \in [0, u_0]$. We are interested in maximising the dividend payments under a drawdown constraint, that is, we penalise a drawdown size larger than a level $d > 0$. We show that the optimal dividend rate $U(t)$ is either zero or the maximal rate $u_0$ and determine the optimal strategy. Moreover, we derive an explicit expression for the value function by solving a system of differential equations.

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Kira Dudziak, Hanspeter Schmidli. 2025-10-29. Stochastic Control of Dividends with a Drawdown Penalty. https://arxiv.org/abs/2510.25494

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