| Abstract: |
| This paper concerns the optimal dividend strategy problem with endogenous bankruptcy boundary under the presence of Chapter 11 of the US bankruptcy code. For any given declaring bankruptcy boundary under Chapter 11, we model the value function as the solution to a singular stochastic control problem and its corresponding closed-form solution is obtained by partial differential equation. Meanwhile, we prove that the optimal dividend strategy for any given bankruptcy boundary is a barrier strategy constructed by a unique reflecting barrier. Furthermore, the optimal bankruptcy boundary is numerically determined by maximizing the value function. Numerical results show that Chapter 11 has a role impact on the optimal dividend strategy problem. The company can get the bigger wealth value by filing for Chapter 11; Furthermore, in the presence of Chapter 11, the company usually pays dividends to shareholders earlier so as to maximize the wealth value of the company, but the corresponding life cycle is shorter. |
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