Management Fee Contracts Design Of Open-ended Funds With Redemption Risk Constraint

With the development of economy, people's investment management ideas and concept is changing. The financial productions come into our life, and get more and more attention. Funds enliven in financial market with the feature of small risk and stable profit and many scholars research them in different visions. As a principal, the investor gives money to the fund manager who is responsible for the investment decisions as an agent. But what the managers have done can't be observed. There may be some behavior that damages the interest of investors. That's moral hazard in the principal-agent relation. How to prevent the moral hazard is a hot issue for scholars. To the different kinds of moral hazard, one of the effective ways is to design efficient excitation mechanism.As the price strategy of fund companies, the management fee of open fund is the key to the design of fund productions. Formulating a proper management fee ration can solve the moral hazard and provide valuable reference for preventing moral hazard. So, this problem is always researched by financial scholars and companies as an important tactics. My paper starts with the principal-agent relations, and studies the impact of fund management fees to the redemption risk constraint.This paper assumes that the investor provide the fund manager with a linear contract based on the benchmark, the principal-agent models with the redemption risk constraint are made in order to study the impact that the redemption of the fund has on fund management fees and its incentive effect. The optimal contracts and the optimal investment strategies are obtained in closed form as well as the optimal liquidation strategies. Our study implies that the optimal fixed management fees are positive related with the redemption risk, fixed management fees increase when the redemption risk rises; the fund manager takes the maximum risk and the redemption risk does not affect the incentive management fees. The results got from the two situations provide the reference and suggestion for a better development of the fund industry.