Economics at your fingertips  

Optimal contracts in continuous-time models

Jakša Cvitanić, Xuhu Wan and Jianfeng Zhang

International Journal of Stochastic Analysis, 2006, vol. 2006, 1-27


We present a unified approach to solving contracting problems with full information in models driven by Brownian motion. We apply the stochastic maximum principle to give necessary and sufficient conditions for contracts that implement the so-called first-best solution. The optimal contract is proportional to the difference between the underlying process controlled by the agent and a stochastic, state-contingent benchmark. Our methodology covers a number of frameworks considered in the existing literature. The main finance applications of this theory are optimal compensation of company executives and of portfolio managers.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1155/JAMSA/2006/95203

Access Statistics for this article

More articles in International Journal of Stochastic Analysis from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().

Page updated 2021-01-22
Handle: RePEc:hin:jnijsa:095203