Optimal contract

Definition:

The contract that balances the three types of agency costs (contracting, monitoring, and misbehavior) against one another to minimize the total cost.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Combination strategy

A strategy in which a put and call with different strike prices and the same expiration are either both bought or both sold. Related: Straddle

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