20 May 2013
Ex Boccherini - Piazza S. Ponziano 6 (Conference Room )
This paper concerns the problem of determining an optimal control on the dividend and investment policy of a firm under debt constraints. We allow the company to make investment by increasing its outstanding indebtedness, which would impact its capital structure and risk profile, thus resulting in higher interest rate debts. Moreover, a high level of debt is also a challenging constraint to any firm, as it is the threshold below which the firm value should never go to avoid bankruptcy. It is equally possible for the firm to divest parts of its business in order to decrease its financial debt owed to creditors. In addition, the firm may favor investment by postponing or reducing any dividend distribution to shareholders. We formulate this problem as a combined singular and multiswitching control problem and use a viscosity solution approach to get qualitative descriptions of the solution. We further enrich our studies with a complete resolution of the problem in the two-regime case and provide some numerical illustrations.
Scotti, Simone - Université Denis Diderot - Paris 7 - Paris