George M. Frankfurter, Joanne M. Hill, A Normative Approach to Pension Fund Management, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 4, Proceedings of 16th Annual Conference of the Western Finance Association, June 18-20, 1981, Jackson Hole, Wyoming (Nov., 1981), pp. 533-555

In this paper Ho and Saunders apply a model that has been used to analyze dealer spreads to banking.A potential contribution to a field can arise whenever a well-developed framework of analysis in one problem area is applied to another field. The risk of a mechanical application, however, is that the institutional structure of the two problem areas is so different that no real insights are gained. What are the facts here?

Stephen M. Schaefer, Taxation and Bond Market Equilibrium in a World of Uncertain Future Interest Rates: Comment, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 5 (Dec., 1981), pp. 773-777

Ronald E. Shrieves, John M. Wachowicz, Jr., A Utility Theoretic Basis for "Generalized" Mean-Coefficient of Variation (MCV) Analysis, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 5 (Dec., 1981), pp. 671-683

In this paper prices of corporate bonds are decomposed into elements associated with (1) the pure price of time, (2) the default risk of the agency rating class to which the bond is assigned, and (3) the unique risk and ancillary features of the bond itself.

The form of the Pareto optimal general insurance contract has been investigated by Borch [5], Arrow [3], and Raviv [16]. This paper extends their work to the consideration of the optimal investment portfolio insurance contract. This is a contract whose payoff depends upon the investment performance of some specified portfolio of common stocks. Portfolio insurance differs from general insurance in two important ways. First, investment portfolio insurance lacks the property of stochastic independence between losses on different contracts which is characteristic of general insurance, and this has led some actuaries to question whether portfolio insurance contracts should be sold in view of the risks they pose for the solvency of insurance companies. Recent developments in the theory of option pricing suggest, however, that under certain assumptions an insurance company will be able to eliminate the risks associated with portfolio insurance contracts by following an appropriately defined investment strategy. Secondly, there exists a market for the pricing of investment risks, the securities market; and, under appropriate assumptions, the equilibrium price of portfolio insurance contracts may be determined without specification of the preferences of insurance companies. This permits consideration of insurance company preference functions to be dispensed with, in marked contrast to the earlier literature concerned with general insurance, which treats insurance company preferences symmetrically with those of the insurance purchaser. In addition, since the characteristics of the insured portfolio are known to the insurer, and the performance of the portfolio is beyond the control of the insured, portfolio insurance is not prone to the problems of adverse selection and moral hazard which are liable to arise in general insurance.

Robert M. Conroy, Robert L. Winkler, Informational Differences Between Limit and Market Orders for a Market Maker, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 5 (Dec., 1981), pp. 703-724