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A Time-homogeneous Diffusion Model with Tax

By Bin Li [a, Qihe Tang [b and Xiaowen Zhou [c


We study the two-sided exit problem of a time-homogeneous diffusion process with tax payments of loss-carry-forward type and obtain explicit formulas for the Laplace transforms associated with the two-sided exit problem. The expected present value of tax payments until default, the two-sided exit probabilities and, hence, the nondefault probability with the default threshold equal to the lower bound are solved as immediate corollaries. A suffi cient and necessary condition for the tax identity in ruin theory is discovered

Topics: MSC, Primary 62P05, Secondary 60J60, 60G40, 60K15, 91B30
Year: 2013
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