As this week there were no FAM-seminars, we are pleased to announce the talk of Jaska Cvitanic within the lecture series of the VGSF. One of the next guests of the VGSF is Tomas Björk, see also: http://www.vgsf.ac.at/activities/seminars.htm Best regards, Sandra Trenovatz (FAM-office) ------------------------------------------------------------------- Fr, 2008-03-14, 15:30-17:00 Vienna Institute of Finance (WU-H46), 1190, Heiligenstädter Strasse 46-48, seminar room 1 (ground floor) Jaska Cvitanic California Institute of Technology "Optimal Contract in Continuous Time" Paper 1: Optimal Contracts in Continuous-Time Models In this paper we present a unified approach to solving contracting problems with full information in models driven by Brownian Motion. We apply the stochastic maximum principle to give necessary and sufficient conditions for contracts that implement the so-called first-best solution. The optimal contract is proportional to the difference between the underlying process controlled by the agent and a stochastic, state-contingent benchmark. Our methodology covers a number of frameworks considered in the existing literature. The main finance applications of this theory are optimal compensation of company executives and of portfolio managers. Paper 2: Optimal contracting with random time of payment and outside options We consider continuous-time Principal-Agent problems in which the payoff is delivered at an optimal random time, in cases of moral hazard and/or adverse selection. The principal can design contracts of a simple form that induce the agent to ask for the payo® at the time of principal's choosing. The optimal time of payment depends on the agent's and the principal's outside options. In examples with CARA utilities, under specific "stationarity" conditions on the outside options, it is not optimal for the principal to give the agent the option to exercise the contract at a random time. However, in general, the optimal payment time is typically random. Examples of this include the following cases: the agent can be ¯red, after having been paid a severance payment, and then replaced by another agent; the agent and the principal have asymmetric beliefs on the return of the output. In the case of adverse selection, the agents of lower type exercise early, while the agents of higher type wait until the end. The methodology we use for the general theory is the stochastic maximum principle and its link to Forward-Backward Stochastic Differential Equations and their reflected version, appropriate for optimal stopping problems. The papers to be presented can be downloaded from the VGSF website (http://www.vgsf.ac.at/activities/seminars.htm). Professor Cvitanic will come to WU-H46 (Building of Vienna Institute of Finance) on Friday morning. Please contact professor Damir Filipovic (http://www.vif.ac.at/filipovic/) if you would like to arrange an individual meeting with him.