Department of Mathematics

Speaker: Nizar Touzi
Title: Control of Non-Markov Diffusions, Application to the Principal-Agent Problem
Affiliation: École Polytechnique, France
Date: Wednesday, October 28, 2015
Place and Time: Room 101, Love Building, 3:35-4:30 pm
Refreshments: Room 204, Love Building, 3:00 pm

Abstract. The dynamic programming approach leads to path-dependent HJB equations. We review the corresponding well-posedness in the Sobolev sense. This leads to second order backward stochastic differential equations. As an application, we consider a general formulation of the so-called Principal-Agent problem from Contract Theory, on a finite horizon. We show that the problem reduces to a standard stochastic control problem which may be analyzed by the classical tools of control theory.