Seminar Event Detail

Financial/Actuarial Mathematics

Date:  Wednesday, October 11, 2017
Location:  1360 East Hall (4:00 PM to 5:00 PM)

Title:  Bank monitoring incentives under moral hazard and adverse selection

Abstract:   In this paper, we extend the optimal securitization model of Pages (2013) and Possamai and Pages (2014) between an investor and a bank to a setting allowing both moral hazard and adverse selection.

Following the recent approach to these problems of Cvitanic, Wan and Yang (2013), we characterize explicitly and rigorously the so-called credible set of the continuation and temptation values of the bank, and obtain the value function of the investor as well as the optimal contracts through a recursive system of first-order variational inequalities with gradient constraints. We provide a detailed discussion of the properties of the optimal menu of contracts and extensions to the case of proof-renegotiation contracts.

Files: 4743_hernandez.pdf

Speaker:  Nicolas Hernandez
Institution:  UM

Event Organizer:     


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