A put option is, in effect, an insurance policy whose cost depends upon the "strike price" at which the insurance policy kicks in, the risk of the assets being insured, and the rate of return available on riskless investment
The pension fund has a riskless investment
opportunity i = 0 and risky opportunities i = 1, .
Risk adjusted rates of return are estimated to be less than 100 basis points above the risk-free rate for all NCREIF return series except the Pacific Northwest, which is 150 basis points above the benchmark riskless investment
The closest thing to a riskless investment
is a Treasury bill, which can be held to maturity.
In the investment world, proposing a riskless investment
with high rewards is tantamount to selling a perpetual motion machine or a pill that turns water into gasoline.
The market risk premium measures the extra return that would be demanded by investors for shifting their money from a riskless investment
to an averagerisk investment.
One of the most interesting sections in the book is the discussion of equity risk and the equity risk premium, that is, the historical reward investors have enjoyed for bearing the greater volatility risk of equity investment relative to an investment in Treasury bills, a riskless investment
Abel, NBER and University of Pennsylvania, "The Social Security Trust Fund, the Riskless Investment
Rate, and Capital Accumulation" (NBER Working Paper No.
No investment advisor would advise an award recipient to place a lump sum in a riskless investment
of any sort, and certainly not a specialty security like TIIS bonds.
f] = continuously compounded return on a riskless investment
with a maturity of t.
Economists have long appreciated that employees should logically and rationally prefer a DC pension plan that allows them to make investment decisions to one that forces them to earn riskless returns on riskless investments
By eliminating targeted tax incentives for savings and investment, that act eliminated distinctions on income from risk and riskless investments