mathematics

Article
Cash Flow Optimization on Insurance: An Application of
Fixed-Point Theory
Yangmin Zhong 1 and Huaping Huang 2, *

1 School of Law, Shanghai University of Finance and Economics, Shanghai 200433, China
2 School of Mathematics and Statistics, Chongqing Three Gorges University, Wanzhou,
Chongqing 404020, China
* Correspondence: [email protected]

Abstract: The purpose of this paper is to explore a discrete-time cash flow optimization problem
of the insurance company with time value of ruin under different interest rates. For the sake of
considering the time value of ruin, we assume that the shareholders can get subsidies per unit time,
as long as the insurance company is not bankrupt. The switching of different interest rates on the
market is controlled by a stationary Markov chain. The dynamic programming principle is used to
solve this optimization problem. By using the method of fixed-point theory, we show that the value
function is the unique solution of the dynamic programming equation and a numerical algorithm is
proposed to solve the value function as well as the optimal policy. Furthermore, two examples are
revealed to illustrate the application of the main results obtained in the presented paper.

Keywords: optimal dividend; dynamic programming principle; fixed-point theory

MSC: 90C39; 91G30

1. Introduction
The optimization of cash flow management has a long history in the area of actuarial
science. The original study on the cash flow optimization can be traced back to 1957. At
that time, De Finetti [1] proposed the maximization problem of the expected present value
Citation: Zhong, Y.; Huang, H. Cash of the dividend payments of the insurance company. From then on, the management
Flow Optimization on Insurance: An of cash leakages played an important role to measure the performance of the insurance
Application of Fixed-Point Theory. company and also attracted the public attentions in the academic area. As an example,
Mathematics 2023, 11, 902. https:// Ref. [2] considered the optimal dividend problem of diffusion process with transaction
doi.org/10.3390/math11040902 fees. Ref. [3] explored the optimal dividend pay-out optimization when the surplus follows
Academic Editor: Janusz Brzdek the controlled diffusion risk model. Ref. [4] generalized the Brownian motion to the
compound Poisson risk process and studied the corresponding optimal dividend with
Received: 19 January 2023 bounded dividend rate. Ref. [5] explored the optimal investment and dividend problem
Revised: 2 February 2023
for the renewal process by viscosity solution approach. In the setting of continuous-time
Accepted: 8 February 2023
model, the dividend optimization has been investigated under various modellings in recent
Published: 10 February 2023
years. For more relevant references, one can see [6–8]. We also refer the reader to [9] for the
exhaustive references to seek the past development on the issue of dividend optimization.
A lot of references such as [10,11] considered the optimal dividend problem under the
Copyright: © 2023 by the authors.
condition that the discount factor is a constant. As we know, compared with the constant
Licensee MDPI, Basel, Switzerland. interest rate, the stochastic interest rate can simulate market changes more realistically. The
This article is an open access article optimal dividend policy with random interest rates of continuous time was studied in [12]
distributed under the terms and in which the authors considered the effects of financial markets and concluded that a firm
conditions of the Creative Commons will pay more dividend if the interest rate is high and pay less dividend if the interest rate
Attribution (CC BY) license (https:// is low. Ref. [13] also considered the optimal dividend problem with stochastic interest rate
creativecommons.org/licenses/by/ while the stochastic interest rates are modelled by the geometric Brownian motion and
4.0/). the Ornstein–Uhlenbeck process, respectively. Moreover, the authors derived the explicit

Mathematics 2023, 11, 902. https://doi.org/10.3390/math11040902 https://www.mdpi.com/journal/mathematics

Mathematics 2023, 11, 902 2 of 12

solution of the optimal strategy for the first case and switched to the viscosity solution
analysis for the second case. In our paper, we also consider the optimal dividend under
different interest rates.
To the best of our knowledge, compared with the continuous time model, there
are fewer articles dealing with discrete time model. However, the discrete-time model’s
advantage is that it is more close to the reality. In reality, all transactions are conducted
on weekdays. In the setting of discrete-time model, Ref. [14] assumed that in one period
the surplus risk process follows a time-homogenous Markov process with possible values
+1, 0, −1, −2, · · · and proved that the optimal dividend policy is of band type. Ref. [15]
considered the optimal dividend of the compound binomial model with bounded dividend
rate. The discrete-time dividend problem under random interest rate was studied in [16]
in which the authors consider a constant penalty should be paid when the ruin occurs.
Inspired by [17], instead of a ruin penalty, we consider that a subsidy must be paid to
shareholders each unit time as long as the company is not bankrupt. The company aims
to maximize the cumulative discounted dividends and subsidies before ruin. In our
paper, we use mathematical method to explore such financial optimization problem for the
insurance company.
There are various approaches to solve the optimal strategy in the field of stochastic
optimal control. In our paper, the dynamic programming principle is applied to analyze
this optimization problem. We first show the dynamic programming equation (or in other
words, the discrete Hamilton–Jacobi–Bellman equation) and then the contraction mapping
is applied to show that the dynamic programming equation has a unique solution. Later, a
numerical algorithm based on the fixed-point theory is put forward to solve the dynamic
equation as well as the optimal policy. In the last, two examples are shown to demonstrate
the applicability of the algorithm.
The paper is constructed as follows. Section 2 introduces the model of surplus, interest
rates and the optimization problem. Section 3 proves that the optimal value function
satisfies the dynamic programming equation. Based on Banach contraction mapping
principle from fixed-point theory, it is shown that the dynamic programming equation
has a unique solution. Based on the uniqueness of the solution, Section 4 constructs
an algorithm to solve the dynamic programming equation as well as the optimal policy.
Section 5 lists two examples to demonstrate the applicability of the algorithm and some
economic reasons are explained.

2. The Model and Preliminaries

In this paper, we assume that the wealth of the insurance company is given as follows:

Xn = x + βn − [S1 ζ 1 + S2 ζ 2 + · · · Sn ζ n ], n = 1, 2, · · · .

Let X0 = x ≥ 0 be written as the initial wealth of the company and the constant β > 0
as the premium each unit time. At time i ∈ {1, 2, · · · }, the claim Si occurs with a probability
$, where 0 < $ < 1 is a positive constant. Mathematically speaking, the distribution of ζ i is
written by

1, with probability $;
ζi =
0, with probability 1 − $.

We also assume that the claim a amount {Si }i∞=1 are independent and identically
distributed. Furthermore, {Si } are also assumed to be positive integer-valued random
variables with common distribution F. For simplicity, we denote the distribution of the
claim amount S as
f k = P(S = k), k = 1, 2 · · · .
Mathematics 2023, 11, 902 3 of 12

We assume that there are m different interest rates {ri }im=1 on the financial market and
the interest rates are driven by a stationary Markov chain with the transition matrix

···
 
P11 P12 P1m
 P21 P22 ··· P2m 
M= .
 
.. .. .. ..
 . . . . 
Pm1 Pm2 · · · Pmm
m
Apparently, we know that for all i ∈ {1, 2, . . . , m}, ∑ Pij = 1. The Markov chain M
j =1
shows that if the current interest rate at time i is ri , then at next time i + 1, the interest rate
becomes r j with probability Pij ≥ 0.
Now we define the discount rate vi := 1+1 r , i = 1, 2, · · · , m. Obviously, the discount
i
factor satisfies 0 < vi < 1 and the corresponding switching transition matrix of discount
rate {vi }im=1 is still the matrix M. Denote (Ω, F , P; {Ft }t≥0 ) as a filtered probability space,
here Ft is generated by the Markov chain which drives the interest rate and the processes
{ Xt }, {ζ t } we defined before.
In the following, we always denote N+ as the set of all positive integers, N0 as the set
of all non-negative positive integers. Denote ∆Lk as the dividend amount at time k and
n
Ln = ∑ ∆Lk as the cumulative dividend before time n. The controlled dynamics of the
k =1
wealth can be formulated mathematically by

XnL = x + βn − [S1 ζ 1 + S2 ζ 2 + · · · Sn ζ n ] − Ln , n = 1, 2, · · · .

We call the dividend strategy Ln admissible if the following conditions are satisfied:
(1) The dividend amount ∆Lk at time k is non-negative integer-valued and predictable
with respect to the filtration Ft .
(2) The dividend amount ∆Lk shall not exceed XkL , where XkL denotes the wealth at time
k before the dividend is paid. In other words, the dividend should not leads to ruin.
(3) The dividend strategy is time-consistent, which means that the amount paid at time k
only depends on the surplus XkL and the current interest rate ri instead of the time k.
For better presentation, a diagram of one trajectory of the surplus process XnL is shown
in Figure 1.

Figure 1. One trajectory of the surplus process XnL .

Mathematics 2023, 11, 902 4 of 12

Denote K the set of all admissible strategies and define the ruin time of the insurance
company as follows:
ϑ := inf{n ∈ N+ | XnL < 0}.
For the initial wealth x, the initial interest rate ri (the initial discount rate vi ), and
the given dividend policy {∆Lk }∞ k =0 ∈ K , we define the following cumulative discounted
dividend value with subsidies:
" #
ϑ
J ( x, i; L) := E ∑ uk (∆Lk + Λ) ,
k =0

k
where u0 = 1, uk := ∏ vi (k = 1, 2, · · · ), Λ > 0 is a constant representing the subsidy of
i =1
unit time. In [16], the authors considered the dividend optimization if a constant penalty
is paid when the ruin occurs. Whereas, in our model, we consider that the shareholders
can get a subsidy each unit time as long as the company is not ruined. We aim to find an
optimal dividend strategy {∆Lk }∞ k =0 ∈ K to maximize J ( x, i; L ). For notational simplicity
we define the following value function:

V ( x, i ) := sup J ( x, i; L).
∆L∈K

Apparently, the value function V is a m-dimensional vector-valued function. From the

definition of the value function, we can easily obtain the following property.

Property 1. For any x1 , x2 ∈ N with x1 > x2 , it follows that

V ( x1 , i ) − V ( x2 , i ) ≥ x1 − x2 .

Proof. For the initial wealth x1 and initial interest rate ri (discount rate vi ), we choose a
special strategy L such that x1 − x2 is paid as dividend at the initial time and then follows
the strategy L̃, where L̃ denotes any arbitrary strategy with initial data ( x2 , i ). According to
the definition of admissibility of dividend strategy, the lump dividend x1 − x2 is allowed.
Then, we can see that

V ( x1 , i ) ≥ J ( x1 , i; L) = J ( x2 , i; L̃) + x1 − x2 .

Since L̃ is arbitrary, we have V ( x1 , i ) − V ( x2 , i ) ≥ x1 − x2 . One can also find the similar

idea which was used in other relevant references, for example, the proposition 2.2 of [18].

Now we show some preliminaries about the Banach fixed-point theorem which we
will use in following paragraphs. We first show the definition of fixed point.

Definition 1. Let E be a metric space. We call a point z in E a fixed point of the mapping
G : E → E if G(z) = z.

Definition 2. Let ( E, d) be a complete metric space. We call a mapping G : E → E a contraction

mapping on E if there exists a constant c ∈ [0, 1) such that

d(G(z1 ), G(z2 )) ≤ cd(z1 , z2 )

for all z1 , z2 ∈ E.

Now we are ready to present the Banach contraction principle.

Theorem 1 (The Banach Contraction Principle). Let E be a complete metric space and the
mapping G : E → E be a contraction. Then G : E → E has only one fixed point.
Mathematics 2023, 11, 902 5 of 12

We omit the proof here. The Banach fixed-point theorem guarantees the existence and
uniqueness of the fixed point and provides a method to find the fixed point. For more
details about the Banach fixed-point theorems and its applications, we refer the interested
reader to [19,20].

3. The Dynamic Programming Principle

Before stating our theorems, we first define the following notations for simplicity.
Denote U the set of all mappings from N0 × {1, 2, · · · , m} to Rm
+ . Given the function
g ∈ U , ∆L ∈ {0, 1, 2, · · · , x }, define the function

x + β−∆L
q( x, j; g, ∆L) := $ ∑ f k g( x + β − ∆L − k, j) + (1 − $) g( x + β − ∆L, j).
k =1

Utilize the classical dynamic programming principle, the value function has the
following property.

Theorem 2. For the initial wealth x and the initial interest rate ri (in other words, the initial
discount rate vi ), the value function satisfies
!
m
V ( x, i ) = sup ∆L + Λ + vi ∑ Pij q(x, j; V, ∆L) , x = 0, 1, 2 · · · , ∞; i = 1, 2, · · · , m. (1)
∆L∈{0,1,2,...,x } j =1

When the surplus is x and the interest rate is ri , the optimal dividend ∆L∗ is
!
m
arg max
∆L∈{0,1,2,...,x }
∆L + vi ∑ Pij q(x, j; V, ∆L) .
j =1

Proof. The dynamic programming equation has been proved in a lot of references, for
example, the excellent books [21,22], hence we omit the detailed proof here.

For the sake of notational simplicity, we define the operator G : U → U as follows:

 ! 
m
 sup ∆L + Λ + v1 ∑ P1j q( x, j; g, ∆L) 
   ∆L∈{0,1,2,...,x } j =1 
g(·, 1) 
 m
! 

 g(·, 2) 

 sup ∆L + Λ + v2 ∑ P2j q( x, j; g, ∆L) 

G ( x ) :=  ∆L∈{0,1,2,...,x } j =1 .
 
..
.
 
   .. 
g(·, m)

 . 
! 
 m 
sup ∆L + Λ + vm ∑ Pmj q( x, j; g, ∆L)
 
∆L∈{0,1,2,...,x } j =1

It is easy to see that the dynamic programming Equation (1) can be rewritten as
   
V (·, 1) V (·, 1)
 V (·, 2)   V (·, 2) 
 ( x ) = G  ( x ). (2)
   
 .. ..
 .   . 
V (·, m) V (·, m)

Now we show that there exists a unique solution for Equation (2). To this end, we
only need to show that the mapping G is a contraction mapping. Accordingly, we have the
following theorem:

Theorem 3. The Equation (1) has a unique solution.

Mathematics 2023, 11, 902 6 of 12

Proof. For any function g ∈ U , define the norm by

k( g(·, 1), g(·, 2), · · · , g(·, m))T k

( )
:= max sup | g( x, 1)|, sup | g( x, 2)|, · · · , sup | g( x, m)| ,
x ∈ N0 x ∈ N0 x ∈ N0

where AT denotes the transpose matrix of the matrix A.

For any functions ĝ, g̃ ∈ U , define the metric d on U by
 
d ( ĝ(·, 1), ĝ(·, 2), · · · , ĝ(·, m))T , ( g̃(·, 1), g̃(·, 2), · · · , g̃(·, m))T

:= ( ĝ(·, 1) − g̃(·, 1), ĝ(·, 2) − g̃(·, 2), · · · , ĝ(·, m) − g̃(·, m))T

( )
= max sup |( ĝ − g̃)( x, 1)|, sup |( ĝ − g̃)( x, 2)|, · · · , sup |( ĝ − g̃)( x, m)| .
x ∈ N0 x ∈ N0 x ∈ N0

Then (U , d) is a complete metric space.

Assume that ξ̂, ξ̃ ∈ U , then

d(Gξ̂, Gξ̃ ) = kGξ̂ − Gξ̃ k. (3)

Obviously, Gξ̂ − Gξ̃ is a m-dimensional column vector, we first consider the first item
of such column vector.
It is not hard to verify that

!
 m
∆L + Λ + v1 ∑ P1j q(x, j; ξ̂, ∆L)


 sup
∆L∈{0,1,2,...,x } j =1
!
m
∆L + Λ + v1 ∑ P1j q( x, j; ξ̃, ∆L) 

− sup
∆L∈{0,1,2,...,x } j =1
x + β−∆L
!
m (4)
≤ sup v1 ∑ P1j $ ∑ f k sup {|ξ̂ (·, j) − ξ̃ (·, j)|} + (1 − $) sup {|ξ̂ (·, j) − ξ̃ (·, j)|}
∆L∈{0,1,2,...,x } j =1 k =1 x ∈ N0 x ∈ N0
m
≤ v1 ∑ P1j sup0 {|ξ̂ (·, j) − ξ̃ (·, j)|}
j =1 x ∈N

≤v1 kξ̂ − ξ̃ k.

Similarly, we can show that for each i ∈ {2, · · · , m}, the i-th item of the vector Gξ̂ − Gξ̃
satisfies

!
 m
∆L + Λ + vi ∑ Pij q(x, j; ξ̂, ∆L)


 sup
∆L∈{0,1,2,...,x } j =1
!
m
∆L + Λ + vi ∑ Pij q( x, j; ξ̃, ∆L) 

− sup
∆L∈{0,1,2,...,x } j =1
x + β−∆L
!
m (5)
≤ sup vi ∑ Pij $ ∑ f k sup {|ξ̂ (·, j) − ξ̃ (·, j)|} + (1 − $) sup {|ξ̂ (·, j) − ξ̃ (·, j)|}
∆L∈{0,1,2,...,x } j =1 k =1 x ∈ N0 x ∈ N0
m
≤ vi ∑ Pij sup0 {|ξ̂ (·, j) − ξ̃ (·, j)|}
j =1 x ∈N

≤vi kξ̂ − ξ̃ k.
Mathematics 2023, 11, 902 7 of 12

Eventually, substituting the inequalities (4) and (5) into (3), we have

d(Gξ̂, Gξ̃ ) ≤ ṽkξ̂ − ξ̃ k,

where ṽ = max{v1 , v2 , · · · , vm } < 1. Until now, we show that the mapping G : U → U is

a contraction mapping. Therefore, by using Banach contraction mapping principle, there
exists a unique solution to the Equation (2) as well as the Equation (1).

4. Algorithm
In this section, based on the proof of the uniqueness, we show an algorithm to solve the
value function via Banach contraction mapping principle which is similar to the Bellman’s
recursive algorithm used in [14].
(i) We start from any real-valued function W0 . Choose Wold (·, j) = W0 (·, j) ( j = 1, 2, · · · , m)
on N0 and define the new function Wnew (·, j) ( j = 1, 2, · · · , m) by
  
Wnew (·, 1) Wold (·, 1)
Wnew (·, 2)   Wold (·, 2) 
 ( x ) : = G  ( x ).
  
.. ..
.   . 
Wnew (·, m) Wold (·, m)

(ii) After calculating Wnew , we choose Wold := Wnew again and iterate the sequences Wold
and Wnew until both Wnew and Wold converge.
Since the value function V (·, j)m
j=1 is a fixed point of the contraction mapping G, we
can see that the value function

V = lim Gn W0 .
n→∞

Consequently, as long as we choose n large enough, Gn W0 can be seen as a numerical

solution of the value function V (·, j)m
j =1 .
Put Wn+1 = GWn . On account of

kWn+1 − Wn k = kGWn − GWn−1 k ≤ ṽkWn − Wn−1 k, n = 1, 2, · · · ,

we get that

kWn+1 − Wn k ≤ ṽkWn − Wn−1 k ≤ · · · ṽn kW1 − W0 k. (6)

For any two positive integer m, n with m > n, it holds that

kWm − Wn k ≤ kWm − Wm−1 k + kWm−1 − Wm−2 k + · · · + kWn+1 − Wn k. (7)

Substituting (6) into (7) gives

kWm − Wn k ≤ (ṽm−1 + ṽm−2 + · · · + ṽn )kW1 − W0 k. (8)

Since the optimal value function V = limm→∞ Wm , letting m → ∞ in (8) shows that
the error estimation can be calculated as
ṽn
kV − Wn k ≤ kW1 − W0 k.
1 − ṽ
In the meanwhile, when the current surplus is x and the current interest rate is ri , the
optimal policy is
!
m
arg max
∆L∈{0,1,2,...,x }
∆L + vi ∑ Pij q(x, j; V, ∆L) .
j =1
Mathematics 2023, 11, 902 8 of 12

Remark 1. In the real financial market, the dividend is paid with taxes (including fixed and
proportional transaction costs). For example, Ref. [23] considered the optimal dividend problem
considering fixed and proportional transaction costs and the equity issuance. In our model, if
we consider the fixed and proportional transaction costs each time the dividend is paid, then the
corresponding cumulative discounted dividend with the consideration of ruin time is defined as
" #
ϑ
J ( x, i ) := E ∑ uk ((µ∆Lk − γ)1{∆Lk 6=0} + Λ) ,
k =0

where 1 A denotes the indicator function of the event A, the constant 0 < µ < 1 represents the
proportion of transaction fee and the constant γ > 0 denotes the fixed transaction fee. Then the
dynamic programming principle can be rewritten as

V ( x, i )

= sup (µ∆L − γ)1{∆L6=0} + Λ
∆L∈{0,1,2,...,x }
m  x + β−∆L 
+ vi ∑ Pij $ ∑ f k V ( x + β − ∆L − k, j) + (1 − $)V ( x + β − ∆L, j) .
j =1 k =1

The optimal policy ∆L∗ is calculated as


arg sup (µ∆L − γ)1{∆L6=0}
∆L∈{0,1,2,...,x }
m  x + β−∆L 
+ vi ∑ Pij $ ∑ f k V ( x + β − ∆L − k, j) + (1 − $)V ( x + β − ∆L, j) .
j =1 k =1

All the above dynamic principles and algorithms can be rewritten similarly, thus, in this paper
we only focus on the optimal dividend problem without transaction fees.

Remark 2. The classical method of solving optimal dividend problem is to solve an explicit solution
for the value function or analytically explore the structure of the optimal strategy, see, for example,
Refs. [4,14]. In our paper, based on the fixed-point theory, we construct an algorithm to numerically
calculate the optimal policy and the value function. Although there is no explicit expression for the
value function, the advantages of using the fixed-point theory can be listed as: (1) There is no need to
use the boundary condition. (2) The algorithm is easy to be used and constructed. (3) The complex
theoretical calculation can be avoided.

5. Numerical Examples
Example 1. In this example, there are two different discount rates, v1 = 0.9, v2 = 0.95. The
premium rate β = 10. The subsidy each unit time Λ = 2. The probability of claim occurs $ = 0.3.
The distribution of claim size follows

1  24 k
f k = P(S = k) = , k = 1, 2 · · · .
25 25
The transition matrix of the Markov chain is
1 1
   
P11 P12 2 2
M= = 1 2 .
P21 P22 3 3

Now we show the numerical solution of the optimal policy and the value function under
different discount rates.
Tables 1 and 2 show the optimal policy under the discount rate v1 = 0.9, v2 = 0.95, respec-
tively. When the discount rate v1 = 0.9, the dividend barrier is 0, which means that, all the surplus
Mathematics 2023, 11, 902 9 of 12

above value 0 will be paid as dividend. Compared with the discount rate 0.9, when the discount
rate is 0.95, the dividend barrier is 4, which means that, all surplus above the value 4 will be paid
as dividend. This phenomenon can be explained that if the discount rate is low, which means the
interest rate is high, then the company manager will pay more cash to the shareholders. If the
interest rate is low, then the company prefers to save money and waits until the interest rate is high.
Tables 3 and 4 show the value function with the discount rate v1 = 0.9, v2 = 0.95, respectively.
When the optimal policy is not paying dividend, the increment of the value function is larger than 1.
In economics, it can be explained that paying no dividend can bring more benefits when the interest
rate is low.

Table 1. The optimal policy with discount rate v1 = 0.9.

v1 = 0.9
x 0 1 2 3 4 5 6 7 8 9 10 11 12
∆L∗ 0 1 2 3 4 5 6 7 8 9 10 11 12

Table 2. The optimal policy with discount rate v1 = 0.95.

v2 = 0.95
x 0 1 2 3 4 5 6 7 8 9 10 11 12
∆L∗ 0 0 0 0 0 1 2 3 4 5 6 7 8

Table 3. The value function with discount rate 0.9.

v1 = 0.9
x 0 1 2 3 4 5 6 7 8 9 10 11
V ( x, 1) 33.35 34.35 35.35 36.35 37.35 38.35 39.35 40.35 41.35 42.35 43.35 44.35

Table 4. The value function with discount rate 0.95.

v2 = 0.95
x 0 1 2 3 4 5 6 7 8 9 10 11
V ( x, 2) 35.34 36.35 37.36 38.3665 39.3675 40.36 41.36 42.36 43.36 44.36 45.36 46.36

Example 2. In this example, we consider that there are three different discount rates, v1 = 0.94,
v2 = 0.95, v3 = 0.98. The transition probability matrix
 1 1 1 
2 4 4
M= 1 1 1 .
6 2 3
1 1 1
3 3 3

The premium rate β = 10. The probability of claim occurs $ is 0.3 and the subsidy each unit
time Λ is still 2. Assume that the claim amount distribution follows the uniform distribution with
distribution function
1
f k = P(S = k) = , k = 1, 2, · · · , 50.
50
Tables 5–7 list the optimal dividend policy under different discount rate v1 = 0.93, v2 = 0.96
and v3 = 0.95, respectively. As we can see, when the discount factor is 0.93, there are two
dividend barriers, the first one is 0 and the second one is 41. For all x ∈ {0, 1, · · · , 29}, all surplus
above value 0 will be paid as dividend. When x ∈ {30, 31, · · · , 40}, no dividend is paid. When
x ∈ {41, 42, · · · }, all the surplus above the value 40 will be paid as dividend. The no-dividend
region is {30, 31, · · · , 40}. This kind of policy is called the band strategy (i.e., there are more than
1 dividend barrier). When the discount rate is 0.96, the no-dividend region is {20, 21, · · · , 40}.
When the discount rate is 0.95, the no-dividend region is {24, 25, · · · , 40}.
Mathematics 2023, 11, 902 10 of 12

Tables 8–10 list the value function under different interest rates v1 = 0.93, v2 = 0.96 and
v3 = 0.95, respectively. We can see that when the optimal policy is not paying dividend, the
increment of the value function is larger than 1. When the optimal policy is to pay the dividend, the
increment of the dividend is exactly 1. Such numerical phenomenon also verifies the Property 1 in
Section 2.

Table 5. The optimal dividend policy with discount rate v1 = 0.93.

v1 = 0.93
x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗
0 0 7 7 14 14 21 21 28 28 35 0 42 2
1 1 8 8 15 15 22 22 29 29 36 0 43 3
2 2 9 9 16 16 23 23 30 0 37 0 44 4
3 3 10 10 17 17 24 24 31 0 38 0 45 5
4 4 11 11 18 18 25 25 32 0 39 0 46 6
5 5 12 12 19 19 26 26 33 0 40 0 47 7
6 6 13 13 20 20 27 27 34 0 41 1 48 8

Table 6. The optimal dividend policy with discount rate v2 = 0.96.

v2 = 0.96
x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗
0 0 7 7 14 14 21 0 28 0 35 0 42 2
1 1 8 8 15 15 22 0 29 0 36 0 43 3
2 2 9 9 16 16 23 0 30 0 37 0 44 4
3 3 10 10 17 17 24 0 31 0 38 0 45 5
4 4 11 11 18 18 25 0 32 0 39 0 46 6
5 5 12 12 19 19 26 0 33 0 40 0 47 7
6 6 13 13 20 0 27 0 34 0 41 1 48 8

Table 7. The optimal dividend policy with discount rate v3 = 0.95.

v3 = 0.95

x x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗ x ∆L∗

∆L∗
0 0 7 7 14 14 21 21 28 0 35 0 42 2
1 1 8 8 15 15 22 22 29 0 36 0 43 3
2 2 9 9 16 16 23 23 30 0 37 0 44 4
3 3 10 10 17 17 24 0 31 0 38 0 45 5
4 4 11 11 18 18 25 0 32 0 39 0 46 6
5 5 12 12 19 19 26 0 33 0 40 0 47 7
6 6 13 13 20 20 27 0 34 0 41 1 48 8

Table 8. The value function with discount rate v1 = 0.93.

v1 = 0.93
x V ( x, 1) x V ( x, 1) x V ( x, 1) x V ( x, 1) x V ( x, 1) x V ( x, 1) x V ( x, 1)
0 31.05 7 38.05 14 45.05 21 52.05 28 59.05 35 66.42 42 73.91
1 32.05 8 39.05 15 46.05 22 53.05 29 60.05 36 67.51 43 74.91
2 33.05 9 40.05 16 47.05 23 54.05 30 61.07 37 68.60 44 75.91
3 34.05 10 41.05 17 48.05 24 55.05 31 62.13 38 69.70 45 76.91
4 35.05 11 42.05 18 49.05 25 56.05 32 63.19 39 70.80 46 77.91
5 36.05 12 43.05 19 50.05 26 57.05 33 64.27 40 71.91 47 78.91
6 37.05 13 44.05 20 51.05 27 58.05 34 65.34 41 72.91 48 79.91
Mathematics 2023, 11, 902 11 of 12

Table 9. The value function with discount rate v2 = 0.96.

v2 = 0.96
x V ( x, 2) x V ( x, 2) x V ( x, 2) x V ( x, 2) x V ( x, 2) x V ( x, 2) x V ( x, 2)
0 32.25 7 39.25 14 46.25 21 53.42 28 61.35 35 69.26 42 76.96
1 33.25 8 40.25 15 47.25 22 54.52 29 62.53 36 70.39 43 77.96
2 34.25 9 41.25 16 48.25 23 55.63 30 63.71 37 71.52 44 78.96
3 35.25 10 42.25 17 49.25 24 56.76 31 64.81 38 72.66 45 79.96
4 36.25 11 43.25 18 50.25 25 57.89 32 65.92 39 73.81 46 80.96
5 37.25 12 44.25 19 51.25 26 59.03 33 67.03 40 74.96 47 81.96
6 38.25 13 45.25 20 52.32 27 60.19 34 68.14 41 75.96 48 82.96

Table 10. The value function with discount rate v3 = 0.95.

v3 = 0.95
x V ( x, 3) x V ( x, 3) x V ( x, 3) x V ( x, 3) x V ( x, 3) x V ( x, 3) x V ( x, 3)
0 31.79 7 38.79 14 45.79 21 52.79 28 60.34 35 68.14 42 75.76
1 32.79 8 39.79 15 46.79 22 53.79 29 61.50 36 69.26 43 76.76
2 33.79 9 40.79 16 47.79 23 54.79 30 62.67 37 70.38 44 77.76
3 34.79 10 41.79 17 48.79 24 55.82 31 63.75 38 71.50 45 78.76
4 35.79 11 42.79 18 49.79 25 56.94 32 64.84 39 72.63 46 79.76
5 36.79 12 43.79 19 50.79 26 58.07 33 65.93 40 73.76 47 80.76
6 37.79 13 44.79 20 51.79 27 59.20 34 67.04 41 74.76 48 81.76

6. Conclusions
In this paper, the optimal dividend optimization with subsidies under different interest
rates are explored. When the claims follow the geometric distribution, the optimal dividend
policy is a barrier strategy while the barrier is decided by the current interest rate. When
the claims follow the uniform distribution, then the optimal dividend policy is of multiple
barrier type, i.e., the band type. We conclude that the optimal dividend policy will be
different under different claim distributions.

Author Contributions: Y.Z. designed the research and wrote the paper. H.H. gave the methodology
and the support of funding acquisition. All authors have read and agreed to the published version of
the manuscript.
Funding: The second author acknowledges the financial support from the Natural Science Foundation
of Chongqing (cstc2020jcyj-msxmX0762, CSTB2022NSCQ-MSX0290) and the Talent Initial Funding
for Scientific Research of Chongqing Three Gorges University (20190020).
Data Availability Statement: The data presented in this study are available upon request from the
corresponding author.
Acknowledgments: The authors read and approved the final manuscript. They thank the editor
and the referees for their valuable comments and suggestions which improved greatly the quality of
this paper.
Conflicts of Interest: The authors declare no conflict of interest.

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