Dividend optimization for regime-switching general diffusions

We consider the optimal dividend distribution problem of a financial corporation whose surplus is modeled by a general diffusion process with both the drift and diffusion coefficients depending on the external economic regime as well as the surplus itself through general functions. The aim is to find a dividend payout scheme that maximizes the present value of the total dividends until ruin. We show that, depending on the configuration of the model parameters, there are two exclusive scenarios: (i) the optimal strategy uniquely exists and corresponds to paying out all surpluses in excess of a critical level (barrier) dependent on the economic regime and paying nothing when the surplus is below the critical level; (ii) there are no optimal strategies. (C) 2013 Elsevier B.V. All rights reserved.