Conventional de-risking involves selling equities and buying bonds but there are alternative strategies to consider to reduce pension risk, especially for plans that still need equity returns to close their funding gap. (Photo: Shutterstock)

Many investors will be familiar with the concept of buying put options to hedge exposure to the equity markets: An investor pays a premium to buy the option to sell equities at a specified level (such as 10% below the current level) at a future date — such as in one year).

Investors may also have the view that using options to hedge equity exposure is costly and complex and that more traditional de-risking strategies, such as selling equities to buy bonds, are better.

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