The Application of the Principal Agent Theory to Derivatives Pricing—— A Case of Weather Derivatives

• Main Authors: CAI WENTING, 蔡雯婷
• Other Authors: Yao, Jen-Te
• Format: Others
• Language: zh-TW
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/e56xug

碩士 === 輔仁大學 === 經濟學系碩士班 === 103 === The issue of optimal pricing of weather derivatives is the main topic of the current dissertation. According to different consumers’s preference (agent), the contracts of the different risk aversion parameter will be designed by a firm (a principal) with different prices. Then the analysis of the relationship with consumer risk aversion parameter and the price contract, and the relationship between risk aversion parameter and the consumer utility, and the relationship between contract risk and consumer utility have been derived. Subsequently the issue of the maximization of consumer utility, and the maximization of a firm’s profits will be discussed in the thesis respectively. The conclusion of the study are :(1) the greater the risk aversion parameter of consumers is the lower the equilibrium utility of the risky assents contract they bought will be; the greater variation of contract will make the greater decrease of the utility of consumers buying the contract, which means that when the risk increases(the variation increases), the utility will be decrease. Thus, investors are unwilling to shoulder the risk, and they would not buy the risky assets. (2)the contract designed for the consumers with the greatest risk aversion parameter by the firm will meet Pareto efficiency in consumption; however, the contracts for other consumers may not be the contracts of Pareto efficiency. (3)When the probability density function of consumer risk aversion parameter belongs to uniformly distribution, the greater the volatility of contract revenue for those who have greater risk aversion parameter and with greater requirement of contracts expected return, so they ask for a higher remuneration.