Today's retirees face the daunting task of determining appropriate investment and spending strategies for their accumulated savings. Financial economists have addressed their problem using an expected utility framework. In contrast, many financial advisors rely instead on rules of thumb. We show...

Most asset allocation analyses use the mean-variance approach for analyzing the trade-off between risk and expected return. Analysts use quadratic programming to find optimal asset mixes and the characteristics of the capital asset pricing model to determine reasonable optimization inputs. This...

This article describes a set of mean-variance procedures for setting targets for the risk characteristics of components of a pension fund portfolio and for monitoring the portfolio over time to detect significant deviations from those targets. Because of the significant correlations of the...

The Financial Economists Roundtable (FER) is a group of senior financial economists who have made significant contributions to the finance literature and seek to apply their knowledge to current policy debates. The Roundtable focuses on microeconomic issues in investments, corporate finance, and...

This paper considers a world in which pension funds may default, the cost of the associated risk of default is not borne fully by the sponsoring corporation, and there are differential tax effects. The focus is on ways in which the wealth of the shareholders of a corporation sponsoring a pension...

This paper provides a formal setting for the analysis of the capital adequacy of an institution with deposits insured by a third party. An insured depositor has a claim against the institution and a contingent claim against the insurer. This paper analyzes the effect of the riskiness of the...

The first part of this paper provides a historical perspective on bank risks. Five-year moving average measures of total risk, market risk, and nonmarket risk are computed for an index of New York banks from 1929-1975 and for an index of outside New York banks from 1950-1976.We use a carefully...

The 4% rule is the advice many retirees follow for managing spending and investing. We examine this rule's inefficienciesmdash;the price paid for funding its unspent surpluses and the overpayments made to purchase its spending policy. We show that a typical rule allocates 10ndash;20% of a...

Consumer choice occurs over multiple products and services, each comprising multiple risks. In this paper, we present a new market research technique to measure consumers' preferences over large spaces of risks. We first describe the method, present its psychological and analytical motivation,...

This paper considers a world in which pension funds may default, the cost of the associated risk of default is not borne fully by the sponsoring corporation, and there are differential tax effects. The focus is on ways in which the wealth of the shareholders of a corporation sponsoring a pension...