This paper examines the robustness of one month treasury bills as predictors of inflation. The evidence is inconsistent with the joint hypothesis that (1) the expected real rate of interest was constant for one-month bills and (2) that markets are efficient with regard to the time series of inflation. When the expected real rate of interest is set equal to the conditional expectation given the time series of real rates, the results are much more consistent with the efficient markets model. In more positive terms, the failure to confirm market efficiency appears to be the result of naive estimates of the expected real rate.

Interest rate swaps, a financial innovation in recent years, are based upon the principle of comparative advantage. An interest rate swap is a useful tool for active liability management and for hedging against interest rate risk. The purpose of this paper is to provide a simple economic analysis of interest rate swaps. Alternative uses of and the appropriate valuation procedure for interest rate swaps are described.

Interest rate swaps, a financial innovation in recent years, are based upon the principle of comparative advantage. An interest rate swap is a useful tool for active liability management and for hedging against interest rate risk. The purpose of this paper is to provide a simple economic analysis of interest rate swaps. Alternative uses of and the appropriate valuation procedure for interest rate swaps are described.

This paper examines the implications of the joint effects of insurance and taxes for the optimal corporate pension strategy. It is shown that neither the “mini-max” nor the “maxi-min” strategy advocated by previous authors is necessarily best in corporate pension management. In the presence of capital market imperfections, the analysis via a single-period contingent-claims model indicates that optimal corporate pension strategy in both asset-allocation and funding decisions can be a noncorner interior solution.

This paper examines the implications of the joint effects of insurance and taxes for the optimal corporate pension strategy. It is shown that neither the “mini‐max” nor the “maxi‐min” strategy advocated by previous authors is necessarily best in corporate pension management. In the presence of capital market imperfections, the analysis via a single‐period contingent‐claims model indicates that optimal corporate pension strategy in both asset‐allocation and funding decisions can be a noncorner interior solution.