Handout 8: Lead compensation Eric Feron March 1, 2004 Lead Compensation goals: Raise phase( gain) at high frequen cies while not touching low-frequency system's characteristics: Can extend bandwidth of system. Canonical lead element:
Discount model is in terms of conditional moments The first order condition is,u'( BE, [u'(c )x 1] The expectation is conditional expectation on investor's time t information; The basic pricing equation is P, =E, (m +1X1+)