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Optimal Fund Menus

When: 

Oct 15, 2019 - 11:25am to 12:30pm

Where: 

RE 119

Speaker: 

Jaksa Cvitanic
Division of The Humanities and Social Sciences, California Institute of Technology

Description: 

We study the optimal design of a menu of funds by a manager who is required to use linear pricing and does not observe the beliefs of investors regarding one of the risky assets. The optimal menu involves bundling of assets and can be explicitly constructed from the solution to a calculus of variations problem that optimizes over the indirect utility that each type of investor receives. We provide a complete characterization of the optimal menu and show that the need to maintain incentive compatibility leads the manager to offer funds that are inefficiently tilted towards the asset that is not subject to the information friction. Joint with Julien Hugonnier.

Event Type: 

Department of Applied Mathematics - Mathematical Finance and Stochastic Analysis Seminar