Moral hazard in dynamic risk management

Management Science

Volumn 63, Issue 10, 2017, Pages 3328-3346

  Cvitanic, Jakša ^a   Possama, Dylan ^b   Touzic, Nizar ^c  

^a CALIFORNIA INSTITUTE OF TECHNOLOGY   (United States)

^b UNIVERSITÉ PARIS DAUPHINE   (France)

^c CENTRE DE MATHÉMATIQUES APPLIQUÉES   (France)

Author keywords

Moral hazard; Principal agent problem; Risk management; Volatility portfolio selection

Indexed keywords

PROBLEM SOLVING;

DYNAMIC RISKS; INDIVIDUAL COMPONENTS; MORAL HAZARD; OPTIMAL CONTRACT; QUADRATIC VARIATIONS; RISKY PROJECTS; SHARPE RATIOS; VOLATILITY/PORTFOLIO SELECTION;

RISK MANAGEMENT;

EID: 85031318098     PISSN: 00251909     EISSN: 15265501     Source Type: Journal    
DOI: 10.1287/mnsc.2016.2493     Document Type: Article

References (29)

1. Bichteler K (1981) Stochastic integration and Lp-theory of semi-martingales. Ann. Prob. 9(1):49–89.
2. Briand P, Hu Y (2008) Quadratic BSDEs with convex generators and unbounded terminal conditions. Prob. Theory Related Fields 141(3–4):543–567.
3. Cadenillas A, Cvitani J, Zapatero F (2007) Optimal risk-sharing with e ort and project choice. J. Econom. Theory 133:403–440.
4. Cont R, Fourni D (2013) Functional It calculus and stochastic integral representation of martingales. Ann. Probab. 41(1):109–133.
5. Cvitani J, Possama D, Touzi N (2015) The dynamic programming approach to principal–agent problems. Working paper, California Institute of Technology, Pasadena.
6. Dupire B (2009) Functional It calculus. Working paper, Bloomberg L.P., New York.
7. El Karoui N, Peng S, Quenez M-C (1997) Backward stochastic di erential equations in finance. Math. Finance 7(1):1–71.
8. Epstein L, Ji S (2013) Ambiguous volatility and asset pricing in continuous time. Rev. Financ. Stud. 26(7):1740–1786.
9. Epstein L, Ji S (2014) Ambiguous volatility, possibility and utility in continuous time. J. Math. Econom. 50:269–282.
10. Holmstrom B, Milgrom P (1987) Aggregation and linearity in the provision of intertemporal incentives. Econometrica 55(2): 303–328.
11. Kazi-Tani N, Possama D, Zhou C (2015) Second-order BSDEs with jumps: formulation and uniqueness. Ann. Appl. Probab. 25(5):2867–2908.
12. Leung RCW (2014) Continuous-time principal–agent problem with drift and stochastic volatility control: With applications to delegated portfolio management. Working paper, University of California, Berkeley, Berkeley.
13. Lioui A, Poncet P (2013) Optimal benchmarking for active portfolio managers. Eur. J. Oper. Res. 226(2):268–276.
14. Kobylanski M (2000) Backward stochastic di erential equations and partial di erential equations with quadratic growth. Ann. Prob. 28(2):558–602.
15. Neufeld A, Nutz M (2014) Measurability of semimartingale characteristics with respect to the probability law. Stoc. Proc. App. 124(11):3819–3845.
16. Nutz M (2012) Pathwise construction of stochastic integrals. Elec. Com. Prob. 17(24):1–7.
17. Nutz M, Soner HM (2012) Superhedging and dynamic risk measures under volatility uncertainty. SIAM J. Control Optim. 50(4): 2065–2089.
18. Nutz M, van Handel R (2013) Constructing sublinear expectations on path space. Stochastic Processes Appl. 123(8):3100–3121.
19. Peng S, Song Y, Zhang J (2014) A complete representation theorem for G-martingales. Stochastics 86(4):609–631.
20. Possama D, Royer G, Touzi N (2013) On the robust super hedging of measurable claims. Electronic Comm. Prob. 18(95):1–13.
21. Possama D, Tan X, Zhou C (2015) Stochastic control for a class of non-linear kernels and applications. Working paper, University Paris-Dauphine, Paris.
22. Ou-Yang H (2003) Optimal contracts in a continuous-time delegated portfolio management problem. Rev. Financial Stud. 16(1): 173–208.
23. Sannikov Y (2008) A continuous-time version of the principal–agent problem. Rev. Econom. Stud. 75(3):957–984.
24. Soner HM, Touzi N, Zhang J (2011) Quasi-sure stochastic analysis through aggregation. Electronic J. Probab. 16(67):1844–1879.
25. Soner HM, Touzi N, Zhang J (2012) Wellposedness of second-order backward SDEs. Prob. Th. Rel. Fields 153(1–2):149–190.
26. Soner HM, Touzi N, Zhang J (2013) Dual formulation of second order target problems. Ann. Appl. Probab. 23(1):308–347.
27. Sung J (1995) Linearity with project selection and controllable di usion rate in con-tinuous-time principal–agent problems. RAND J. Econom. 26(4):720–743.
28. Sung J (2014) Optimal contracts and managerial overconfidence, under ambiguity. Working paper, Ajou University, Suwon, South Korea.
29. Wong T-Y (2013) Dynamic agency and exogenous risk taking. Working paper, Shanghai University of Finance and Economics, Shanghai, China.