Maximizing dividends without bankruptcy

Consider the classical compound Poisson model of risk theory, in which dividends are paid to the shareholders according to a barrier strategy. Let b ∗ be the level of the barrier that maximizes the expectation of the discounted dividends until ruin. Dickson and Waters (2004) point out that the shareholders should be liable to cover the deficit at ruin. Thus, let bo be the level of the barrier that maximizes the expectation of the difference between the discounted dividends until ruin and the discounted deficit at ruin. In this paper, b ∗ and bo are compared, when the claim amount distribution is exponential or a combination of exponentials. Key words: dividends, barrier strategies, Dickson and Waters modification, combination of exponential claim amount distributions. 1