Optimal delegation contract with portfolio risk
研究在委托代理摩擦下，将投资组合风险纳入合同对最优策略和均衡资产价格的影响，发现当代理摩擦严重时，最优合同通过奖励组合风险改善风险分担，并补偿指数收益促使代理人偏离指数挂钩，从而缓解价格扭曲。
Conventional linear benchmarked contracts tend to cause excessive pegging to the benchmark and thus price distortion of stocks in the benchmark. This paper studies the optimal delegation contract when there is principal-agent friction. Specifically, it explores the impacts of incorporating the risk of invested portfolio in the contract on optimal strategies of the principal and the agent as well as on equilibrium asset prices. When agency friction is severe, the optimal contract provides rewards for portfolio risk to improve risk sharing and grants compensation for index return to propel the agent to deviate from pegging to index. In equilibrium, the principal conducts index investment while the agent invests only in individual risky assets, and price distortion caused by agency friction is mitigated.