A relatively new research paper that appeared in the International Journal of Pension Management explores how derivatives can help pension plans manage risk and boost return. In the paper, “When Do Derivatives Addd Value in Pension Fund Asset Allocation“, the authors explore whether or not using equity- and volatility-based derivative instruments can help the pension industry meet the pension promise in challenging times. To do this, the authors consider “the design problem for optimal derivative strategies in the context of strategic asset allocation.”
For any plan sponsors considering a more comprehensive derivatives strategy, this paper could offer some helpful tips.