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Optimal strategy for a fund manager with option compensation
I consider the problem of portfolio optimization for a manager whose compensation is given by the sum of a constant and a variable term. The constant term is a fixed percentage of the managed funds that is payed to the manager independently of his performance. The variable term is a premium that is...
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Published in: | Decisions in economics and finance 2018-05, Vol.41 (1), p.1-17 |
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Main Author: | |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that this one cites Items that cite this one |
Online Access: | Get full text |
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Summary: | I consider the problem of portfolio optimization for a manager whose compensation is given by the sum of a constant and a variable term. The constant term is a fixed percentage of the managed funds that is payed to the manager independently of his performance. The variable term is a premium that is proportional to the profit earned by the manager over a benchmark at a certain evaluation date. I find the optimal strategy and the optimal portfolio value in the Black–Scholes setting when the benchmark is a linear combination of the risky asset and the money market account. |
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ISSN: | 1593-8883 1129-6569 |
DOI: | 10.1007/s10203-017-0204-x |