Abel Cadenillas

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December 23, 2005 Abstract We consider first-best risk-sharing problems in which “the agent” can control both the drift (effort choice) and the volatility of the underlying process (project selection). In a model of delegated portfolio management, it is optimal to compensate the manager with an option-type payoff, where the functional form of the option is(More)
Motivated by empirical observations, we assume that the inventory level of a company follows a mean reverting process. The objective of the management is to keep this inventory level as close as possible to a given target; there is a running cost associated with the difference between the actual inventory level and the target. If inventory deviates too much(More)
We consider the problem of an executive that receives call options as compensation in a dynamic setting. She can influence the stock price return with her effort. In addition, she determines the level of volatility of the stock through the choice of projects. The executive is risk-averse and experiences disutility from the effort. In this framework, we(More)
We assume that consumer demand for an item follows a Brownian motion with a drift that is modulated by a continuous-time Markov chain that represents the regime of the economy. The economy may be in either one of two regimes. The economy remains in one regime for a random amount of time that is exponentially distributed with rate λ1, and then moves to the(More)
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