Flow of Dividends under a Constant Force of Interest
Juma Kasozi and Jostein Paulsen
DOI : 10.3844/ajassp.2005.1389.1394
American Journal of Applied Sciences
Volume 2, Issue 10
This study addresses the issue of maximization of dividends of an insurer whose portfolio is exposed to insurance risk. The insurance risk arises from the classical surplus process commonly known as the Cramér-Lundberg model in the insurance literature. To enhance his financial base, the insurer invests in a risk free asset whose price dynamics are governed by a constant force of interest. We derive a linear Volterra integral equation of the second kind and apply an order four Block-by-block method of Paulsen et al. in conjunction with the Simpson rule to solve the Volterra integral equations for each chosen barrier thus generating corresponding dividend value functions. We have obtained the optimal barrier that maximizes the dividends. In the absence of the financial world, the analytical solution has been used to assess the accuracy of our results.
© 2005 Juma Kasozi and Jostein Paulsen. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.