Title :
Solving Principal-Agent Problem with Dynamic Programming Method
Author_Institution :
Inst. of Econ., Xuzhou Normal Univ., Xuzhou, China
Abstract :
The paper studies Principal-agent problem with dynamic Programming Method. So as to find the optimal contact between a principal and an agent, we make a model in dynamic state process to maximize the expected utility of the agent and obtain the famous Hamilton-Jacobi-Bellman equation. Furthermore, we derive closed-form solution of HJB equation with a power utility function.
Keywords :
dynamic programming; economics; optimisation; stock markets; utility theory; Hamilton-Jacobi-Bellman equation; dynamic programming method; dynamic state process; economic relationship; expected utility maximization; financial market; power utility function; principal-agent optimal contact; principal-agent problem; Closed-form solutions; Contracts; Dynamic programming; Economics; Equations; Mathematical model; Stochastic processes; Dynamic programming method; HJB equation; Principal-agent problem; Stochastic differential equation; Stochastic optimal control;
Conference_Titel :
Business Intelligence and Financial Engineering (BIFE), 2011 Fourth International Conference on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4577-1541-9
DOI :
10.1109/BIFE.2011.109
