Conventional de-risking involvesselling equities and buying bonds but there are alternativestrategies to consider to reduce pension risk, especially for plansthat still need equity returns to close their funding gap. (Photo:Shutterstock)
Many investors will be familiar with the concept of buying putoptions to hedge exposure to the equity markets: An investor pays apremium to buy the option to sell equities at a specified level(such as 10% below the current level) at a future date — such as inone year).
Investors may also have the view that using options to hedgeequity exposure is costly and complex and that more traditionalde-risking strategies, such as selling equities to buy bonds, arebetter.
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