A di usion model for optimal dividend distribution for a companywith constraints on risk

We investigate a model of a corporation which faces constant liability payments and which can choose a production/business policy from an available set of control policies with diierent expected proots and risks. The objective is to maximize the expected present value of the total dividend distributions. The main purpose of this paper is to deal with the impact of constraints on business activities such as inability to completely eliminate risk (even at the expense of reducing the potential proot to zero) or when such a risk cannot exceed a certain level. We analyze the case in which there is no restriction on the dividend pay-out rates. By delicate analysis on the corresponding Hamilton-Jacobi-Bellman equation we compute explicitly the optimal return function and determine the optimal policy.