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Agent's Optimal Compensation Under Inflation Risk by Using Dynamic Contract Model
Fei Chen1; Fei Weiyin2; Zhang Fanhong3; Yang Xiaoguang4
2021-12-01
Source PublicationJOURNAL OF SYSTEMS SCIENCE & COMPLEXITY
ISSN1009-6124
Volume34Issue:6Pages:2291-2309
AbstractThis paper studies the problem of principal-agent with moral hazard in continuous time. The firm's cash flow is described by geometric Brownian motion (hereafter GBM). The agent affects the drift of the firm's cash flow by her hidden effort. Meanwhile, the firm rewards the agent with corresponding compensation and equity which depend on the output. The model extends dynamic optimal contract theory to an inflation environment. Firstly, the authors obtain the dynamic equation of the firm's real cash flow under inflation by using the Ito formula. Then, the authors use the martingale representation theorem to obtain agent's continuation value process. Moreover, the authors derive the Hamilton-Jacobi-Bellman (HJB) equation of investor's value process, from which the authors derive the investors' scaled value function by solving the second-order ordinary differential equation. Comparing with He-[1], the authors find that inflation risk affects the agent's optimal compensation depending on the firm's position in the market.
KeywordEquity incentive inflation risk Ito formula principal-agent problem the martingale representation theorem
DOI10.1007/s11424-021-0008-5
Indexed BySCI
Language英语
Funding ProjectNational Natural Science Foundation of China[71571001]
WOS Research AreaMathematics
WOS SubjectMathematics, Interdisciplinary Applications
WOS IDWOS:000741377300014
PublisherSPRINGER HEIDELBERG
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Document Type期刊论文
Identifierhttp://ir.amss.ac.cn/handle/2S8OKBNM/59854
Collection中国科学院数学与系统科学研究院
Corresponding AuthorZhang Fanhong
Affiliation1.Univ Shanghai Sci & Technol, Sch Business, Shanghai 200093, Peoples R China
2.Anhui Polytech Univ, Sch Math Phys & Finance, Wuhu 241000, Peoples R China
3.Shanghai Univ Finance & Econ, Sch Math, Shanghai 200433, Peoples R China
4.Chinese Acad Sci, Acad Math & Syst Sci, Beijing 100190, Peoples R China
Recommended Citation
GB/T 7714
Fei Chen,Fei Weiyin,Zhang Fanhong,et al. Agent's Optimal Compensation Under Inflation Risk by Using Dynamic Contract Model[J]. JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY,2021,34(6):2291-2309.
APA Fei Chen,Fei Weiyin,Zhang Fanhong,&Yang Xiaoguang.(2021).Agent's Optimal Compensation Under Inflation Risk by Using Dynamic Contract Model.JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY,34(6),2291-2309.
MLA Fei Chen,et al."Agent's Optimal Compensation Under Inflation Risk by Using Dynamic Contract Model".JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY 34.6(2021):2291-2309.
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