Linear Models with Project Selection, and Preview of Results

Jakša Cvitanić and Jianfeng Zhang
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Jakša Cvitanić: California Institute of Technology
Jianfeng Zhang: University of Southern California

Chapter Chapter 3 in Contract Theory in Continuous-Time Models, 2013, pp 17-24 from Springer

Abstract: Abstract The main message of this chapter is that for Principal–Agent problems in which volatility is controlled, as is the case in portfolio management, the first best outcome may be attainable by relatively simple contracts. These may be offered either as those in which the principal “sells” the whole output to the agent for a random “benchmark” amount, and/or as a possibly nonlinear function of the final value of the output. It is not necessary that the agent’s actions are observed. Only the final value of the output and, possibly, the final value of the underlying risk process (Brownian motion) need to be observed.

Keywords: Risk Sharing; Local Martingale; Optimal Contract; Portfolio Selection Problem; Wealth Process (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-3-642-14200-0_3

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DOI: 10.1007/978-3-642-14200-0_3

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