Non UBC
DSpace
Cvitanić, Jakša
2014-10-29T06:02:57Z
2014-05-13
We consider a contracting problem in which a principal\r\nhires an agent to manage a risky project.\r\nWhen the agent chooses volatility components of the output process\r\nand the principal observes the output continuously, the principal\r\ncan compute the quadratic variation of the output, but not the\r\nindividual components. This leads to moral hazard with respect to\r\nthe risk choices of the agent. Using a recent theory of singular changes\r\nof measures for Ito processes, we formulate a principal-agent\r\nproblem in this context, and solve it in the case of CARA preferences.\r\nIn that case, the optimal contract is linear in these factors:\r\nthe contractible sources of risk, including the output, the quadratic variation of the output and the cross-variations between the output and the contractible risk sources. Thus, path-dependent contracts naturally arise when there is moral hazard with respect to risk management. We also provide comparative statics via numerical examples, showing that the optimal contract is sensitive to the values of risk premia and the initial values of the risk exposures.\r\n(Joint with N. Touzi and D. Possamai)\r\n
https://circle.library.ubc.ca/rest/handle/2429/50933?expand=metadata
42 minutes
video/mp4
Author affiliation: California Institute of Technology
Banff (Alta.)
10.14288/1.0044155
eng
Unreviewed
Vancouver : University of British Columbia Library
Banff International Research Station for Mathematical Innovation and Discovery
Attribution-NonCommercial-NoDerivs 2.5 Canada
http://creativecommons.org/licenses/by-nc-nd/2.5/ca/
Faculty
BIRS Workshop Lecture Videos (Banff, Alta)
Mathematics
Game theory, economics, social and behavioral sciences
Probability theory and stochastic processes
Mathematical finance
Moral Hazard in Dynamic Risk Management
Moving Image
http://hdl.handle.net/2429/50933