Hyekyung Min (postdoc, PSTAT)

Title: A Stochastic Control Model of Optimal Dividend and Capital Financing

The stochastic control model, introduced by Peura and Keppo (2006), is considered for valuing a firm whose capital evolves according to Brownian motion with a drift. The firm controls the flow of capitals not only by paying out the dividends but also by raising the capital in the presence of fixed cost (K) and delay (D). A solution to this control problem is obtained by solving a system of quasi-variational inequalities. It is shown that a unique solution exists for all values of K >= 0 and D > 0. The asymptotic behavior of the optimal dividend and capital issue barriers, and the ruin probability and the expected lifetime of the firm following the optimal policy will be discussed.