Analysis of the Risk-Sharing Principal-Agent problem through the Reverse-H{\"o}lder inequality
Risk Management
2019-12-18 v3 Probability
Portfolio Management
Abstract
In this paper we provide an alternative framework to tackle the first-best Principal-Agent problem under CARA utilities. This framework leads to both a proof of existence and uniqueness of the solution to the Risk-Sharing problem under very general assumptions on the underlying contract space. Our analysis relies on an optimal decomposition of the expected utility of the Principal in terms of the reservation utility of the Agent and works both in a discrete time and continuous time setting. As a by-product this approach provides a novel way of characterizing the optimal contract in the CARA setting, which is as an alternative to the widely used Lagrangian method, and some analysis of the optimum.
Keywords
Cite
@article{arxiv.1809.07040,
title = {Analysis of the Risk-Sharing Principal-Agent problem through the Reverse-H{\"o}lder inequality},
author = {Jessica Martin and Anthony Réveillac},
journal= {arXiv preprint arXiv:1809.07040},
year = {2019}
}