Jaksa Cvitanic

Professor of Mathematical Finance

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Research interests

Mathematical Finance, Contract Theory, Stochastic Optimal Control.

Research Statement

General research interests: Mathematical Finance, Asset Pricing Theory, Portfolio Theory, Contract Theory, Stochastic Optimization and Control.

My current projects include:

• To further develop the optimal contract theory, or Principal-Agent theory, in continuous-time models. Using those models not only frequently results in more elegant results, but also connects the traditional theory to the modern models used on Wall Street. The main applications include optimal rewards for portfolio managers, and optimal compensation of executives. There remains work to be done in equilibrium framework, with many agents and principals. We also plan to perform experiments, testing different contracts in a laboratory environment.
• To develop new models for pricing credit risk. In particular, to model the possibility that a firm is misrepresenting its accounting data.
• To find optimal ways to price and hedge pension liabilities for a firm with an actively managed pension fund.
• To further develop methods for estimation and prediction of volatility in financial time-series. We have developed and implemented a filtering method which estimates the volatility of stock prices in a model in which we assume no jumps and with volatility independent of the randomness driving the stock price. While giving reasonably good estimates, the model's performance could be improved by relaxing those assumptions, which is the aim of future research.