Shiller (2003) and others have argued for the creation of financial instruments that allow households to insure risks associated with their lifetime labor income. In this paper, we argue that while the purpose of such assets is to smooth consumption across states of nature, one must also...

Shiller (2003) and others have argued for the creation of financial instruments that allow individuals to insure risks associated with their lifetime labor income. In this paper, we argue that while the purpose of such assets is to smooth consumption across states of nature, one must also...

I consider four policies created to address the financial crisis: (1) the ability-to-repay requirement in mortgage underwriting; (2) reform of rating agency compensation, (3) risk retention in securitization, and (4) mandatory loan renegotiation. I show that according to standard models,...

How much should a family save for retirement and for the kids’ college education? How much insurance should they buy? How should they allocate their portfolio across different assets? What should a company choose as the default asset allocation for a mandatory retirement saving plan? We...

This paper develops and applies a simple graphical approach to portfolio selection that accounts for covariance between asset returns and an investor's labor income. Our graphical approach easily handles income shocks that are partly hedgeable, multiple risky assets, multiple risky assets, many...