Conditional Analysis and a Principal-Agent problem
Mathematical Finance
2016-06-15 v3 Portfolio Management
Abstract
We analyze conditional optimization problems arising in discrete time Principal-Agent problems of delegated portfolio optimization with linear contracts. Applying tools from Conditional Analysis we show that some results known in the literature for very specific instances of the problem carry over to translation invariant and time-consistent utility functions in very general probabilistic settings. However, we find that optimal contracts must in general make use of derivatives for compensation.
Keywords
Cite
@article{arxiv.1412.4698,
title = {Conditional Analysis and a Principal-Agent problem},
author = {Julio Backhoff and Ulrich Horst},
journal= {arXiv preprint arXiv:1412.4698},
year = {2016}
}
Comments
27 pages. Forthcoming in Siam Journal on Financial Mathematics (SIFIN)