Bank monitoring incentives under moral hazard and adverse selection
Contributor(s)
Departamento de Ingeniera Matematica [Santiago] (DIM) ; Universidad de Chile [Santiago]CEntre de REcherches en MAthématiques de la DEcision (CEREMADE) ; Centre National de la Recherche Scientifique (CNRS) - Université Paris-Dauphine
National University of Singapore (NUS)
ANR : PACMAN, ANR-16-CE05-0027
Keywords
moral hazardbank monitoring
securitization
adverse selection
principal-agent problem
[MATH.MATH-PR] Mathematics [math]/Probability [math.PR]
[SHS.ECO] Humanities and Social Sciences/Economies and finances
[QFIN.RM] Quantitative Finance [q-fin]/Risk Management [q-fin.RM]
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https://hal.archives-ouvertes.fr/hal-01435460https://hal.archives-ouvertes.fr/hal-01435460/document
https://hal.archives-ouvertes.fr/hal-01435460/file/EHPZ%20-%20january%202017-1.pdf
Abstract
In this paper, we extend the optimal securitization model of Pagès [41] and Possamaï and Pagès [42] between an investor and a bank to a setting allowing both moral hazard and adverse selection. Following the recent approach to these problems of Cvitanić, Wan and Yang [12], 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.Date
2017-01-14Type
info:eu-repo/semantics/preprintIdentifier
oai:HAL:hal-01435460v1hal-01435460
https://hal.archives-ouvertes.fr/hal-01435460
https://hal.archives-ouvertes.fr/hal-01435460/document
https://hal.archives-ouvertes.fr/hal-01435460/file/EHPZ%20-%20january%202017-1.pdf