Solving Principal-Agent Problems via Forward-Backward SDEs -- Good news and bad news

Jianfeng Zhang
University of Southern California (USC)

This talk will be a continuation of Cvitanic's lectures. In a moral hazard model, we shall characterize the agent's optimal action by a backward SDE, and the principal's optimal contract by a forward backward SDE. However, the solvability of such FBSDE seems questionable. Some recent thoughts on the problem will be discussed.

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