Related papers: The Screening Cost of Liquidity
We show that in delegation problems, a principal benefits from belief misalignment vis-\`a-vis an agent when the latter can flexibly acquire costly information. The agent optimally succumbs to confirmatory learning, leading him to favor the…
Human error research on overconfidence supports the benefits of early visibility of defects and disciplined development. If risk to the enterprise is to be reduced, individuals need to become aware of the reality of the quality of their…
Firms' decisions to patent innovations involve a complex evaluation of costs, benefits, and strategic considerations. This article explores the economic and practical factors that influence whether companies seek patent protection. It…
Optimal reinsurance when Value at Risk and expected surplus is balanced through their ratio is studied, and it is demonstrated how results for risk-adjusted surplus can be utilized. Simplifications for large portfolios are derived, and this…
The main result of this paper is a collateralized counterparty valuation adjusted pricing equation, which allows to price a deal while taking into account credit and debit valuation adjustments (CVA, DVA) along with margining and funding…
The optimal stopping problem for the risk process with interests rates and when claims are covered immediately is considered. An insurance company receives premiums and pays out claims which have occured according to a renewal process and…
We study the optimal design of electricity contracts among a population of consumers with different needs. This question is tackled within the framework of Principal-Agent problems in presence of adverse selection. The particular features…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be…
The paper introduces benchmark-neutral pricing and hedging for long-term contingent claims. It employs the growth optimal portfolio of the stocks as numeraire and the new benchmark-neutral pricing measure for pricing. For a realistic…
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…
Take up of microcredit by the poor for investment in businesses or human capital turned out to be very low. We show that this could be explained by risk aversion, without relying on fixed costs or other forms of non-convexity in the…
From skipped exercise classes to last-minute cancellation of dentist appointments, underutilization of reserved resources abounds. Likely reasons include uncertainty about the future, further exacerbated by present bias. In this paper, we…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
In an incomplete market setting, we consider two financial agents, who wish to price and trade a non-replicable contingent claim. Assuming that the agents are utility maximizers, we propose a transaction price which is a result of the…
A monopolist wishes to maximize her profits by finding an optimal price policy. After she announces a menu of products and prices, each agent $x$ will choose to buy that product $y(x)$ which maximizes his own utility, if positive. The…
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…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account…
In financial applications, latency advantages -- the ability to make decisions later than others, even without the ability to see what others have done -- can provide individual participants with an edge by allowing them to gather…