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SUMMARY:Asset pricing under optimal contracts (joint with Hao Xing\, Londo
 n School of Economics)
DTSTART:20170428T103000
DTEND:20170428T120000
DTSTAMP:20260509T225845Z
UID:73055c71e11d23ac56fab60ba4cd7fe34193d6288d92668fd0ea636b
CATEGORIES:Conferences - Seminars
DESCRIPTION:Jaksa CVITANIC (Caltech)\nWe consider the problem of finding e
 quilibrium asset prices in a  financial market in which a portfolio manag
 er (Agent) invests on behalf of an investor  (Principal)\,  who compensa
 tes the manager with  an optimal contract. We extend  a model from Buffa
 \, Vayanos  and Woolley (2014)\, BVW (2014)\, by  allowing general contr
 acts. We find  that the optimal contract rewards  Agent for taking speci
 fic risk  of individual assets and not only the systematic risk of the in
 dex by using the  quadratic variation of the deviation between the portfo
 lio return and the return of an index portfolio.  Similarly to BVW (2014)
 \, we find that\, in  equilibrium\, the stocks in large supply have high
   risk premia\, while the stocks in low supply  have low risk premia\, a
 nd this effect  is stronger as agency friction increases. However\,  by 
 using our risk-incentive optimal contract\, the  sensitivity of the price
   distortion to agency frictions  is of an order  of magnitude smaller 
 compared  to the price distortion in BVW (2014)\, where only contracts li
 near in portfolio value and index are allowed.\n 
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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