Related papers: A Risk-Sharing Framework of Bilateral Contracts
We consider the principal-agent problem with heterogeneous agents. Previous works assume that the principal signs independent incentive contracts with every agent to make them invest more efforts on the tasks. However, in many…
This paper studies optimal contract design in private market investing, focusing on internal decision making in venture capital and private equity firms. A principal relies on an agent who privately exerts costly due diligence effort and…
We introduce and analyze a variation of the Bertrand game in which the revenue is shared between two players. This game models situations in which one economic agent can provide goods/services to consumers either directly or through an…
In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…
We study optimal reinsurance in the framework of stochastic game theory, in which there is an insurer and two reinsurers. A Stackelberg model is established to analyze the non-cooperative relationship between the insurer and reinsurers,…
Achieving consensus among noncooperative agents remains challenging in decentralized multi-agent systems, where agents often have conflicting preferences. Existing coordination methods enable agents to reach consensus without a centralized…
This paper addresses a key challenge in CDO modeling: achieving a perfect fit to market prices across all tranches using a single, consistent model. The existence of such a perfect-fit model implies the absence of arbitrage among CDO…
Price benchmarks are used to incorporate market price trends into contracts, but their use can create opportunities for manipulation by parties involved in the contract. This paper examines this issue using a realistic and tractable model…
We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for…
This paper investigates Pareto optimal (PO, for short) insurance contracts in a behavioral finance framework, in which the insured evaluates contracts by the rank-dependent utility (RDU) theory and the insurer by the expected value premium…
We study the optimal investment-reinsurance problem in the context of equity-linked insurance products. Such products often have a capital guarantee, which can motivate insurers to purchase reinsurance. Since a reinsurance contract implies…
We consider the problem of the optimal trading strategy in the presence of linear costs, and with a strict cap on the allowed position in the market. Using Bellman's backward recursion method, we show that the optimal strategy is to switch…
We consider an optimal consumption/investment problem to maximize expected utility from consumption. In this market model, the investor is allowed to choose a portfolio which consists of one bond, one liquid risky asset (no transaction…
In this article we consider the Merton problem in a market with a single risky asset and transaction costs. We give a complete solution of the problem up to the solution of a free-boundary problem for a first-order differential equation,…
Exchange markets are a significant type of market economy, in which each agent holds a budget and certain (divisible) resources available for trading. Most research on equilibrium in exchange economies is based on an environment of…
We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
The large majority of risk-sharing transactions involve few agents, each of whom can heavily influence the structure and the prices of securities. This paper proposes a game where agents' strategic sets consist of all possible sharing…
We consider a hidden-action principal-agent model, in which actions require different amounts of effort, and the agent privately knows his ability that determines his cost of effort. We show that linear contracts admit approximation…
We introduce a system of kinetic equations describing an exchange market consisting of two populations of agents (dealers and speculators) expressing the same preferences for two goods, but applying different strategies in their exchanges.…