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Conditional Analysis and a Principal-Agent problem

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  • Julio Backhoff
  • Ulrich Horst

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.

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  • Julio Backhoff & Ulrich Horst, 2014. "Conditional Analysis and a Principal-Agent problem," Papers 1412.4698, arXiv.org, revised Jun 2016.
    • Handle: RePEc:arx:papers:1412.4698
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    References listed on IDEAS

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    Cited by:

    1. Julio Backhoff-Veraguas & Patrick Beissner & Ulrich Horst, 2022. "Robust contracting in general contract spaces," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(4), pages 917-945, June.
    2. Julio Backhoff-Veraguas & Patrick Beissner & Ulrich Horst, 2019. "Robust Contracting in General Contract Spaces," Papers 1910.12516, arXiv.org, revised Mar 2021.

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