Multi-period principal-agent problems

• Main Author: Ooi, Kenneth Wen Rui
• Other Authors: Nicolas Privault
• Format: Final Year Project
• Language: English
• Published: 2019
• Subjects: Science::Mathematics::Statistics
• Online Access: http://hdl.handle.net/10356/78851
• Institution: Nanyang Technological University

There is a wealth of literature about principal-agent problems in single-period and continuous-time models, but investigation on such problems in a discrete-time, multi-period setting is relatively scarce. Hence, this report will examine principal-agent problems in a discrete-time, multi-period setting. Specifically, it will focus on risk-sharing problems, where both parties share the same, symmetric information from a known filtration. In Chapter 1, we will elaborate on the general idea of principal-agent problems and describe the motivation behind the project. In Chapter 2, we provide an overview of the types of principal-agent problems that are frequently studied, describe an existing approach used to solve risk-sharing problems, and explain the weaknesses in that particular approach. Subsequently, we will describe a different, more rigourous approach based on stochastic control theory in Chapter 3. We will then continue with an alternative approach based on a reverse Hölder inequality in Chapter 4, and show that the results obtained from the approaches in Chapters 3 and 4 are equivalent. Lastly, we will conclude the report and provide some directions for future work in Chapter 5.