The literature traditionally assumes that a portfolio manager who expends costly effort to generate information makes an unrestricted portfolio choice and is paid according to a sharing rule. However, the revelation principle provides a more efficient institution. If credible communication of...

Traditional mean-variance calculations tell us that the return to a well-diversified portfolio of stocks with an average beta of one will be close to the benchmark. This may suggest that an active manager seeking to beat the market cannot succeed with a large diversified portfolio, and that any...

Controversy about the fairness of early transitions from traditional defined-benefit plans to cash-balance plans may have overshadowed the subtleties of funding a cash-balance pension liability. Because crediting rates of cash-balance liabilities float with market rates, the same techniques used...

Analysis of absence of arbitrage normally ignores payoffs in states to which the agent assigns zero probability. We extend the Fundamental Theorem of Asset Pricing to the case of quot;no empty promisesquot; in which the agent cannot promise arbitrarily large payments in some states. There is a...

Analysis of absence of arbitrage normally ignores payoffs in a set of states to which the agent assigns zero probability. However, bankruptcy and limited resources make it impossible for a trader to make large promises in a state the trader believes to be impossible if the market considers that...

In frictionless markets having no arbitrage, the asymptotic zero-coupon rate never falls. The same is true of the long forward rate. The long par-coupon rate can rise and fall due to forward rate movements at short maturities. This paper relates the three types of interest rate and formalizes...

Portfolio turnpike theorems show that if preferences at large wealth levels are similar to power utility, then the investment strategy converges to the power utility strategy as the horizon increases. We state and prove two simple and general portfolio turnpike theorems. Unlike existing...

We extend Cass and Stiglitz's analysis of preference-based mutual fund separation. We provide a complete characterization of the general K-fund separation. We show that some instances of separation with many funds can be constructed by adding inverse marginal utility functions having separation...

Many directors are not simply insiders or outsiders. For example, an officer of a supplier is neither independent nor captive of management. We use a spatial model of board decision-making to analyze bargaining among multiple types of directors. Board decisions are modeled using a new solution...

Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-towage ratio threshold for retirement and human capital correlates negatively with the stock market...