Related papers: On the Failures of Bonus Plans
We consider a model where an agent has a repeated decision to make and wishes to maximize their total payoff. Payoffs are influenced by an action taken by the agent, but also an unknown state of the world that evolves over time. Before…
We examine optimal regulation of financial networks with debt interdependencies between financial firms. We first show that firms often have an incentive to choose excessively risky portfolios and overly correlate their portfolios with…
Following the recent literature on make take fees policies, we consider an exchange wishing to set a suitable contract with several market makers in order to improve trading quality on its platform. To do so, we use a principal-agent…
We study the design of optimal incentives in sequential processes. To do so, we consider a basic and fundamental model in which an agent initiates a value-creating sequential process through costly investment with random success. If…
We propose a multi-agent model of an asset market and study conditions that guarantee that the strategy of an individual agent cannot outperform the market. The model assumes a mean-field approximation of the market by considering an…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
In financial markets, agents often mutually influence each other's investment strategies and adjust their strategies to align with others. However, there is limited quantitative study of agents' investment strategies in such scenarios. In…
A financial market comprising of a certain number of distinct companies is considered, and the following statement is proved: either a specific agent will surely beat the whole market unconditionally in the long run, or (and this "or" is…
The purpose of this article is to propose a new "theory," the Strategic Analysis of Financial Markets (SAFM) theory, that explains the operation of financial markets using the analytical perspective of an enlightened gambler. The gambler…
In this study, we consider research and development investment by the government. Our study is motivated by the bias in the budget allocation owing to the competitive funding system. In our model, each researcher presents research plans and…
We introduce a general framework for continuous-time betting markets, in which a bookmaker can dynamically control the prices of bets on outcomes of random events. In turn, the prices set by the bookmaker affect the rate or intensity of…
In this paper, we consider the problem of optimal investment by an insurer. The insurer invests in a market consisting of a bank account and $m$ risky assets. The mean returns and volatilities of the risky assets depend nonlinearly on…
In this paper, we study the problem of expected utility maximization of an agent who, in addition to an initial capital, receives random endowments at maturity. Contrary to previous studies, we treat as the variables of the optimization…
Policy Iteration (PI) is a widely used family of algorithms to compute optimal policies for Markov Decision Problems (MDPs). We derive upper bounds on the running time of PI on Deterministic MDPs (DMDPs): the class of MDPs in which every…
In this work we investigate the inefficiency of the electricity system with strategic agents. Specifically, we prove that without a proper control the total demand of an inefficient system is at most twice the total demand of the optimal…
We study infinite-horizon Markov decision processes (MDPs) where the decision maker evaluates each of her strategies by aggregating the infinite stream of expected stage-rewards. The crucial feature of our approach is that the aggregation…
I consider an environment in which a decision maker faces uncertainty and privately holds information in the form of a signal about the true state of the world. The decision maker purchases additional information from a data broker before…
This paper studies optimal market making for large-tick assets in the presence of latency. We consider a random walk model for the asset price, and formulate the market maker's optimization problem using Markov Decision Processes (MDP). We…
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…
This paper looks at a country's optimal central-government optimal policy in a setting where its two identical local jurisdictions compete to attract footloose multinationals to their sites, and where the considered multinationals strictly…