We prove optimal mechanisms for general contract spaces.
problem Optimal mechanism design under adverse selection and ambiguity.
method Existence proof for optimal mechanisms in general contract spaces.
result Centralized contracting is equivalent to delegated contracting.
Optimal execution strategy for merger & acquisition contracts with price impact.
problem Optimal execution and pricing of financial derivatives in M&A deals.
method Indifference utility arguments, considering linear and nonlinear contracts.
result Linear contracts are more expensive and vulnerable to manipulation.
Optimal contracts help principals delegate data collection in decentralized ML.
problem Dealing with information asymmetries in decentralized ML.
method Design of optimal and near-optimal contracts addressing uncertainty in model quality and performance.
result Simple linear contracts achieve 1-1/e fraction of optimal utility.
The paper finds optimal insurance contracts in behavioral finance, avoiding moral hazard.
problem Finding optimal insurance contracts that avoid moral hazard in a behavioral finance framework.
method Formulated as a non-concave maximization problem involving Choquet expectation, then solved using calculus of variations.
result Optimal contracts are found for certain values of safety loading, with some contracts never optimal for others.
Optimal contracts are found for agents with quadratic effort costs.
problem Finding optimal contracts in principal-agent problems with quadratic effort costs.
method Modeling the problem using Hamilton-Jacobi-Bellman (HJB) equations and proving the existence of classical solutions.
result Existence of optimal contracts for agents with quadratic effort costs is proven.
Optimal linear contracts are possible even with memory in Gaussian settings.
problem Can optimal dynamic contracts be linear when agents control memory processes?
method Developed a methodology for non-Markovian and non-semimartingale settings, showed linear contracts are optimal for one-dimensional models.
result Linear contracts are optimal for one-dimensional models with memory, and for radial effort cost functions in higher dimensions.
Algorithm learns optimal contracts for unaware principals.
problem Learning optimal contracts when principal is unaware of agent's utility and action space.
method Sequential contract offers with observed outcomes, using algorithm to approximate optimal contract.
result Algorithm learns optimal contract within epsilon of optimal net profit with bounded samples.
Optimal reinsurance contracts for multiple dependent risks are derived without specific dependency assumptions.
problem Finding optimal reinsurance contracts for multiple dependent risks without assuming their dependency structure.
method Assumes maximal expected utility criterion and independent negotiation of reinsurance for each risk. Derives optimality conditions and shows that under mild assumptions, optimal contracts are classical (non-randomized) type.
result Optimal reinsurance contracts exist and can be classical (non-randomized) type under mild assumptions.
Methodology projects forward electricity contract prices using market equilibrium and social welfare optimization.
problem Quantifying forward contract risks and optimizing revenue/cost for generators/load/traders.
method Market equilibrium and social welfare optimization; linear programming for total agents' welfare.
result Equilibrium contract price corresponds to the dual variable of equilibrium constraints.
Optimal contracts remain linear in output when both moral hazard and adverse selection are present.
problem Optimal compensation problems involving competing principals with uncertainty from both moral hazard and adverse selection.
method Continuous-time setting with risk-averse agent controlling drift of output process driven by Brownian motion. Shows linear contracts hold under type-dependent reservation utilities.
result Optimal contracts remain linear in output when both moral hazard and adverse selection are present.
Study optimal contracts for pandemic risk, offering fixed shares and prevention mechanisms.
problem Optimal delegation contracts in the face of pandemic shutdown risk.
method Dynamic principal-agent model with exogenous early termination risk.
result Explicit characterization of optimal wage and action for prevention mechanisms.
Paper solves optimal contract problem for fund managers with capital injections and trading constraints.
problem Optimal contract for a fund manager with capital injections and endogenous trading constraints.
method Reduces the problem to an inverse problem of SPDE, proving well-posedness and computing the solution explicitly in the Black-Scholes model.
result Characterizes the solution to the inverse problem through a Stochastic Partial Differential Equation (SPDE).
Exchange sets optimal make-take fees to attract liquidity.
problem Setting suitable make-take fees to attract liquidity on an exchange.
method Principal-agent approach to describe optimal contract and quotes.
result Optimal contracting leads to higher quality liquidity and lower trading costs.
Paper revisits optimal incentives in continuous-time problems with new contract types.
problem Optimal incentives in continuous-time principal-agent problems with drift and volatility control.
method Introduces a more general class of contracts parametrized by a function ψ, providing two natural specifications.
result The optimality result of previous methods relies on an assumption that may not hold in general.
The paper analyzes optimal investment strategies for life insurance contracts using mean-variance optimization.
problem Optimal portfolio choice for equity holders in life insurance contracts.
method Mean-variance optimization, explicit formulas, Hamilton-Jacobi-Bellman equations, numerical analysis.
result Equity holders increase investment in risky assets during economic downturns.
A framework for fair derivative contract pricing and risk-sharing between parties with funding differences.
problem Price asymmetry due to funding differences in bilateral contracts.
method Defines a negotiation problem that maximizes the sum of utilities for two parties, deriving optimal prices and collateral.
result Optimal negotiation price and collateral can be used to interpret margin requirements.
The paper calculates fair premiums and optimal stopping rules for equity-linked contracts tied to drawdown and drawup events.
problem Fair valuation of equity-linked contracts tied to drawdown and drawup events.
method Fluctuation theory of Lévy processes and optimal stopping theory.
result Calculation of fair premiums and optimal stopping rules for equity-linked contracts.
A reinsurance contract should address the conflicting interests of the insurer and reinsurer. Most of existing optimal reinsurance contracts only considers the interests of one party. This article combines the proportional and stop-loss reinsurance contracts and introduces a new reinsurance contract called proportional…
Paper uses relaxation techniques to find optimal brokerage fees with private signals.
problem Finding optimal brokerage fees for clients with private trading signals.
method Relaxation techniques to establish contract existence in asymmetric information settings.
result Existence of optimal brokerage fees established in a market model with private signals.
This paper optimizes brokerage contracts for multiple clients trading a single asset.
problem Optimizing brokerage contracts for multiple clients trading a single asset.
method Endogenously determines clients' reservation values and strategically chooses clients. Characterizes optimal portfolios computationally.
result Characterizes optimal portfolios of clients and their profits, showing dependence on price impact coefficients.
Study optimal reinsurance contracts to prevent moral hazard under non-concave premium principles.
problem Preventing moral hazard in reinsurance contracts under non-concave premium principles.
method Develops optimal reinsurance contracts under a diffusion risk model with incentive compatibility constraints and extended distortion premium principles.
result An optimal reinsurance contract exists and is characterized by solving a double obstacle problem.
Optimal contract found for risk averse agent and principal with unknown quality.
problem Finding an optimal contract for a risk averse agent and principal with unknown quality.
method Continuous time Principal-Agent model with exponential utility, moral hazard, and filtering of quality.
result Explicit solution to the optimal contract problem.
New method optimizes share buyback contracts without optimal control's limitations.
problem High-dimensional state spaces and risk penalty selection issues in traditional methods.
method Applies optimized heuristic strategies and classical pricing methods.
result Maximizes contract value and disentangles repurchase from hedging.
Paper proposes machine learning for managing complex buyback contracts.
problem Managing complex buyback contracts, especially accelerated share repurchase.
method Proposes a machine learning method to optimally manage buyback contracts.
result Recovery of strategies similar to those obtained with partial differential equations and tree methods, but without the curse of dimensionality.
Study analyzes fees linked to VIX index in annuity contracts.
problem Impact of VIX-linked fees on annuity contract surrender strategies.
method Two-layer continuous-time Markov chain approximation for fund value process.
result Optimal surrender strategy is more robust to VIX-linked fees.
A large collection of financial contracts offering guaranteed minimum benefits are often posed as control problems, in which at any point in the solution domain, a control is able to take any one of an uncountable number of values from the admissible set. Often, such contracts specify that the holder exert control at a…
Paper presents LLM-enhanced contract metadata extraction.
problem Automatic detection and annotation of legal clauses in contracts.
method Integration of publicly available and proprietary datasets with advanced LLM methodologies.
result Substantial improvements in clause identification accuracy and efficiency.
We consider a contracting problem in which a principal hires an agent to manage a risky project. When the agent chooses volatility components of the output process and the principal observes the output continuously, the principal can compute the quadratic variation of the output, but not the individual components. This…
Investigates optimal withdrawal strategies in VA contracts with tax and ratchet mechanisms.
problem Optimizing withdrawal strategies and behavior of policyholders in VA contracts with tax and ratchet mechanisms.
method Solving a backward dynamic programming problem to optimize cash flows from VA contracts, considering hybrid products and taxation effects.
result Tax-shielding effect of the cash fund enhances contract attractiveness, ratchet mechanism discourages early surrender, and cash fund discourages active withdrawals.
Optimizes fees for multiple market makers to enhance trading quality.
problem Improving trading quality on an exchange platform with multiple market makers.
method Principal-agent approach with Nash equilibrium for market makers optimizing quotes.
result Optimal make take fees contract and spread policies for market makers derived.
Agent optimizes perpetual contract liquidation with transaction costs and risk.
problem Optimizing perpetual contract liquidation with transaction costs and risk.
method Solving stochastic control problem for optimal trading strategy.
result Closed-form expression and approximations for optimal strategy.
Bayesian neural networks achieve optimal posterior contraction rates in Besov spaces with intrinsic dimensionality.
problem High-dimensional structured estimation problems with unknown smoothness levels.
method Sparse Bayesian neural networks with either sparse or continuous shrinkage priors.
result Optimal posterior contraction rates are achieved, adapting to the unknown smoothness level of the true function.
The paper analyzes reinsurance strategies in peer-to-peer insurance schemes.
problem Strategic interaction between plan managers and reinsurers in P2P insurance.
method Develops two game-theoretic contract designs: Pareto and Bowley designs, deriving optimal contracts and analyzing their welfare effects.
result The Bowley design yields a unique optimal contract, while the Pareto design allows for multiple Pareto-optimal contracts.
Study optimizes smart contract adoption under high demand variability using Negative Binomial models.
problem Effective supply chain management under high demand variability.
method Combines dynamic Negative Binomial demand modeling with endogenous smart contract adoption optimization.
result The NB model outperforms other benchmarks in forecasting and optimizing smart contract adoption and order quantity.
Two methods for pricing swing contracts using neural networks or explicit functions.
problem Evaluating optimal energy purchases in swing contracts with firm constraints.
method Two approaches: explicit parametric function and neural network approximation.
result Neural network approach provides better prices in shorter computation time.
New method simplifies analysis of exercise timing for ambiguous integral option contracts.
problem Impact of ambiguity on optimal exercise timing of integral option contracts.
method Parameterized family of excessive functions generating supermartingales, simplifying multidimensional problem to one-dimensional static optimization.
result Value of optimal policy and worst case measure expressed in terms of these processes.
In this paper we consider some insurance policies related to drawdown and drawup events of log-returns for an underlying asset modeled by a spectrally negative geometric Lévy process. We consider four contracts, three of which were introduced in Zhang et al. (2013) for a geometric Brownian motion. The first one is an i…
Paper models corruption in contract negotiations between agents and producers.
problem Formalizing corruption in contract negotiations between agents and producers.
method Mathematical model and economic analysis for three producers, one agent, and one intermediary.
result Optimal non-corruption schemes of financial resources distribution are proposed.
Study optimal reinsurance for insurers with a reinsurer's default risk.
problem Optimal reinsurance for insurers with a reinsurer's default risk.
method Analytical solution for two types of reinsurance contracts.
result Joint effect of reinsurer's default and background risk on reinsurance demand.
Optimal insurance contract limits insurer's risk exposure variance.
problem Designing an optimal insurance contract limiting insurer's risk exposure variance.
method Derive optimal policy semi-analytically, focusing on actuarially fair case.
result Expected coverage is larger for wealthier insured, indicating normal good.
We characterize the value of swing contracts in continuous time as the unique viscosity solution of a Hamilton-Jacobi-Bellman equation with suitable boundary conditions. The case of contracts with penalties is straightforward, and in that case only a terminal condition is needed. Conversely, the case of contracts with …
Optimal reinsurance contracts designed for a continuum of risk types.
problem Designing optimal reinsurance contracts with a continuum of risk types.
method Principal-agent model, VaR at risk tolerance level, change of variables, univariate approach.
result Optimal reinsurance contracts are in stop-loss form, classifying agents into high and low risk groups.
New formulations capture aversion to ambiguity about volatility.
problem Capturing aversion to ambiguity about unknown and time-varying volatility.
method Introduces novel preference formulations and compares them with existing models.
result Illustrates the impact of ambiguity aversion in static and dynamic models.
Study loan contracts in DLPs using derivatives pricing and neural networks.
problem Optimizing and hedging risks in decentralized lending contracts.
method Derivatives pricing theory, deep neural networks, and statistical arbitrage.
result Developed a method to hedge risks in lending contracts and exploit arbitrage opportunities.
Optimizes capital structure for life insurance companies with surplus participation.
problem Determining the optimal participation rate in life insurance contracts.
method Adapted Leland's dynamic capital structure model to life insurance context.
result Optimal participation rate is highly sensitive to contract duration and tax rate.
Under the optimal withdrawal strategy of a policyholder, the pricing of variable annuities with Guaranteed Minimum Withdrawal Benefit (GMWB) is an optimal stochastic control problem. The surrender feature available in marketed products allows termination of the contract before maturity, making it also an optimal stoppi…
A variable annuity contract with Guaranteed Minimum Withdrawal Benefit (GMWB) promises to return the entire initial investment through cash withdrawals during the policy life plus the remaining account balance at maturity, regardless of the portfolio performance. Under the optimal withdrawal strategy of a policyholder,…
Combines option pricing and portfolio theory for optimal hedging.
problem Optimal hedging of European options in various price dynamics.
method Derives optimal holdings and unhedged risk for different price dynamics.
result Derives solutions for various price dynamics including binomial, diffusion, volatility, volatility-of-volatility, and jump diffusion.