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.
This perception may not be valid, especially if some thought is given to how a hedging program is constructed and how to compare it against traditional strategies.
Continue Reading for Free
Register and gain access to:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
