Optimal long-term financing under ambiguous volatility
Name
1051454086-MIT.pdf
Description
Full printable version
Size
2.34 MB
Format
Adobe PDF
Checksum (MD5)
e038e86606c3b3b963927162acbb09b5
Author(s)
Hansen, Peter G. (Peter Giles)
Advisor(s)
Andrey Malenko.
Date Issued
2018
Publisher
Massachusetts Institute of Technology
Abstract
I study a continuous-time principal-agent model with hidden action in which the principal and the agent have ambiguous beliefs about the volatility of the project cash flows. I describe a novel formulation that captures uncertainty about the underlying volatility process show how it affects the optimal contract. Ambiguity aversion generates endogenous belief heterogeneity between the principal and the agent. Under the optimal contract, the agent always trusts the benchmark probability model, while the principal forms expectations as if volatility is strictly higher and state-dependent. Additionally, I show ambiguity aversion generates asset pricing implications for the implied financial securities.
Description
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2018.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 43-45).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
Terms of Use
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