Ulrich Horst (Humbold University Berlin)

We discuss a problem of dynamic risk sharing in discrete time between asymmetrically informed parties, a principal and an agent, when both parties' preference functionals satisfy a translation property. We give sufficient conditions that guarantee existence of an optimal (linear) contract and characterize the optimal contract in terms of a backward stochastic difference equation. Within the framework of a generalized capital asset pricing model the optimal contract can be given in closed form. We also illustrate how risk sharing problems under asymmetric information lead to a novel class of constrained convolution problems whose solution is still open.