In this paper we provide a framework for how the traditional life and pension contracts with a guaranteed rate of return can be optimized to increase customers' welfare. Given that the contracts have to be priced correctly, we use individuals' preferences to find the preferred design. Assuming CRRA utility, we cannot explain the existence of any form of guarantees. Through numerical solutions we quantify the difference (measured in security equivalents) to the preferred Merton solution of direct investments in a fixed proportion of risky and risk free assets. The largest welfare loss seems to come from the fact that guarantees are effective by the end of each year, not only by the expiry of the contract. However, the demand for products with guarantees may be explained through behavioral models accounting for loss aversion, e.g. cumulative prospect theory. In this case, the optimal design seems to be a simple contract with a life-time guarantee.

In this paper we provide a framework for how the traditional life and pension contracts with a guaranteed rate of return can be optimized to increase customers' welfare. Given that the contracts have to be priced correctly, we use individuals' preferences to find the preferred design. Assuming CRRA utility, we cannot explain the existence of any form of guarantees. Through numerical solutions we quantify the difference (measured in security equivalents) to the preferred Merton solution of direct investments in a fixed proportion of risky and risk free assets. The largest welfare loss seems to come from the fact that guarantees are effective by the end of each year, not only by the expiry of the contract. However, the demand for products with guarantees may be explained through behavioral models accounting for loss aversion, e.g. cumulative prospect theory. In this case, the optimal design seems to be a simple contract with a life-time guarantee.

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Purpose The purpose of this paper is to assess how sponsorships affect firm values in professional cycling. Both the effect of entering a sponsorship contract and reactions to good or bad news during the contract period are investigated. Doping scandals are used as examples of bad news and race wins as examples of good news. Design/methodology/approach The well-known event-study methodology of analyzing stock prices is used. In order to avoid unnecessary noise, the main emphasis is on short-term stock market effects. Findings The main original finding is a significant negative reaction to doping scandals within the sponsored team, indicating that the outcome of sponsoring agreements is important for investors. There are no significant stock market reactions to the announcement of sponsorships, hence sponsoring cycling teams in general are perceived as value neutral to the sponsor. Originality/value The paper encourages sponsors and cycling teams to focus on anti-doping measures as doping scandals are perceived as value destructive. This contradicts previous studies with smaller data samples. The negative impact of doping scandals outweighs the potential positive effects of winning cycling races.

In this paper we show that there exist intergenerational cross-subsidization effects in guaranteed interest rate life and pension contracts as the different generations partially share the same reserves. Early generations build up bonus reserves, which are left with the company at expiry of the contract. These bonus reserves function partly as a subsidy of later generations, such that the latter earn a risk-adjusted return above the risk-free rate. Furthermore, we show that this subsidy may be large enough to explain why late generations buy guaranteed interest rate products, which otherwise would not have been part of the optimal portfolio allocation.