********************************************************************


                                                     Seminar

             Department of Systems Engineering and Engineering Management
                                  The Chinese University of Hong Kong

------------------------------------------------------------------------------------------

　

　

　

Title

:

Optimal Compensation and Pay-Performance Sensitivity in a Continuous-Time Principal-Agent Model

　

　

　

Speaker

:

Prof. Nengjiu Ju

　

　

Department of Finance

　

　

Hong Kong University of Science and Technology

　

　

　

Date

:

November 23rd, 2007 (Friday)

　

　

　

Time

:

4:30 p.m. - 5:30 p.m.

　

　

　

Venue

:

Room 513

　

　

William M.W. Mong Engineering Building

　

　

(Engineering Building Complex Phase 2)

　

　

CUHK

　

　

　

------------------------------------------------------------------------------------------

Abstract:
　

This paper studies the optimal contract between well-diversified shareholders and managers. We make three major contributions. First, consistent with empirical findings and contrary to standard agency theory predictions, our theoretical model supports an ambiguous relationship between pay-performance sensitivity and output performance and an ambiguous one between pay-performance sensitivity and output risk. Second, we find that linear contracts are optimal when (i) the manager has a log-utility, and (ii) compensation space is not restricted. Stock options are optimal under (i) and a positive lower bound constraint on compensation. Third, we develop a new method which relies on results of backward stochastic differential equations (BSDEs) to solve certain agency models. Our approach enables us to provide a simple algebraic equation characterization of the optimal contract which helps us study the implications of optimal compensation and effort.


-------------------------------------------------------------------------------------------

Biography:
　

Prof. Nengjiu Ju received his BS (Physics) in 1986 from Peking University, his first PhD degree (Physics) in 1993 from Michigan State University amd his second PhD degree (Finance) in 1998 from UC Berkeley.

Prof. Ju is currently an associate professor in the Department of Finance of Hong Kong University of Science and Technology. Prior to joining HKUST, he was an assistant professor of finance at Smith School of Business, University of Maryland from 1998 to 2005.His personal homepage can be found in http://ihome.ust.hk/~nengjiu/.


************************* ALL ARE WELCOME ************************

　

　

　

Host

:

Prof. Nan Chen

Tel

:

(852) 2609-8237

Email

:

nchen@se.cuhk.edu.hk    

　

　

　

Enquiries

:

Prof. Nan Chen or Prof. Sean X. Zhou

　

:

Department of Systems Engineering and Engineering Management

　

　

CUHK

Website

:

http://www.se.cuhk.edu.hk/~seg5810

Email

:

seg5810@se.cuhk.edu.hk

　

　

　

********************************************************************