From the Harvard Business School web page describing the research of Robert Merton, partner in the busted hedge fund, Long-Term Capital Management. That is, it used to be there; it was removed shortly after Long-Term Capital Management went to the wall. Proper risk control indeed - best done after the fact?


Robert C Merton

Pension Plans of the Future

Pressure on pension plans is mounting due to the aging of the population
in a number of countries. At the same time, employers are seeking to
reduce the risk and regulatory burdens imposed by defined benefit plans
- that is, plans in which future benefits are both guaranteed and tied
to future salary. The result has been a shift towards defined
contribution plans (e.g., 401(k) plans in the United States). In
transferring the investment risk to individuals, this approach increases
the likelihood of inadequate retirement income. To deal with this
financial problem, researchers in the Global Financial System project,
primarily Dwight B. Crane and Robert C. Merton (with Zvi Bodie of Boston
University), are engaged in the design of a new pension plan model of a
defined contribution plan that retains as many features as possible of
traditional defined benefit plans. For example, employers or employees
might contribute a percentage of their salaries to a financial
intermediary that would guarantee some level of retirement income,
thereby reducing the investment and mortality risk to which employees
are exposed. An empirical study aimed at determining how well
individuals manage their investments in defined contribution plans is
also being conducted.


Risk Capital and Capital Allocation

For the principal financial firms, proper risk control is imperative,
and capital allocation exerts an impact on a variety of decisions
related to: accounting for the profitability of individual businesses;
entering or divesting businesses; determining profit-related employee
compensation; choosing from among alternative organizational forms; and
managing overall risk. Historically a top-down concern, principally of
the CFO/treasurer, with the growing importance of off-balance sheet
(derivatives) positions, these issues have also fallen squarely into the
domain of the "risk manager," a bottom-up perspective. Of central
importance is the need for a unifying framework to reconcile the two
perspectives that can be applied on a firmwide basis. The determinants
of the costs of risk capital and possible approaches for measuring and
allocating these costs to the individual businesses that comprise a firm
are receiving particular emphasis in the Global Fi