Tackling 'nastiest, hardest problem in finance'

CONSIDER some of the most challenging problems in finance: the equity-premium puzzle; binomial-option pricing models; do zero interest rates spur inflation or damp it; are stocks cheap or overpriced?

Challenging as those may appear, none compare to what Nobel laureate William Sharpe, 82, calls "decumulation," or the use of savings in retirement. It is, he says, "the nastiest, hardest problem in finance".

Just consider that this is coming from the man who figured out how to price portfolios via the capital-asset-pricing model, and how to measure risk via the "reward to variability ratio," or what has come to be known as the Sharpe ratio.