We analyze conditional optimization problems arising in discrete time
Principal-Agent problems of delegated portfolio optimization with linear
contracts. Applying tools from Conditional Analysis we show that some results
known in the literature for very specific instances of the problem carry over
to translation invariant and time-consistent utility functions in very general
probabilistic settings. However, we find that optimal contracts must in general
make use of derivatives for compensation.Comment: 27 pages. Forthcoming in Siam Journal on Financial Mathematics
(SIFIN
