The Risk Management of Minimum Return Guarantees

Contracts paying a guaranteed minimum rate of return and a fraction of a positive excess rate, which is specified relative to a benchmark portfolio, are closely related to unit-linked life-insurance products and can be considered as alternatives to direct investment in the underlying benchmark. They contain an embedded power option, and the key issue is the tractable and realistic hedging of this option, in order to rigorously justify valuation by arbitrage arguments and prevent the guarantees from becoming uncontrollable liabilities to the issuer. We show how to determine the contract parameters conservatively and implement robust risk-management strategies.

How Individual Scholars Can Reduce the Rigor-Relevance Gap in Management Research

This paper discusses a number of avenues management scholars could follow to reduce the existing gap between scientific rigor and practical relevance without relativizing the importance of the first goal dimension. Such changes are necessary because many management studies do not fully exploit the possibilities to increase their practical relevance while maintaining scientific rigor. We argue that this rigor-relevance gap is not only the consequence of the currently prevailing institutional context in the scientific system, but that individual scholars can reduce the gap between rigorous and practically relevant research by modifying their research work. Thus, most of our suggestions refer to individual scholars’ research activities and relate to specific steps in the (empirical) research process. Our discussion does not imply that all management studies should be practically oriented; basic research will remain a very important part of management research. However, we believe that not enough management research studies are significantly influenced by practical relevance.