Optimal dividends in the dual model under transaction costs

We analyze the optimal dividend payment problem in the dual model under constant transaction costs. We show, for a general spectrally positive Levy process, an optimal strategy is given by a (c(1). c(2))-policy that brings the surplus process down to c(1) whenever it reaches or exceeds c(2) for some 0 <= c(1) < c(2). The value function is succinctly expressed in terms of the scale function. A series of numerical examples are provided to confirm the analytical results and to demonstrate the convergence to the no-transaction cost case, which was recently solved by Bayraktar et al. (2013). (C) 2013 Elsevier B.V. All rights reserved.