Dylan Possamaï (Université Paris-Dauphine)

Event Date: 

Monday, February 22, 2016 -
5:00pm to 6:30pm

Event Date Details: 

  • Refreshments served at 3:15 p.m.
  • Note the starting time.

Event Location: 

  • Sobel Seminar Room; South Hall 5607F
  • CFMAR Seminar Series

Title: Dynamic Programming Approach to Principal-Agent Problems

Abstract: We consider a general formulation of the Principal-Agent problem from Contract Theory, on a finite horizon. We focus in particular on the case where the agent can control the volatility of the output process. We show how to reduce the problem to a stochastic control problem which may be analyzed by the standard tools of control theory. In particular, Agent's value function appears naturally as a controlled state variable for the Principal's problem. Our argument relies on the Backward Stochastic Differential Equations approach to non-Markovian stochastic control, and more specifically, on the most recent extensions to the second order case. This is a joint work with Jaksa Cvitanic and Nizar Touzi.

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