In this paper we use a scenario-based ALM model to study the effects on the risk-return profile of defined benefit pension funds from including options in the pension fund portfolio. Our results show that properly constructed option strategies can add substantial value to pension fund management. The results are robust with respect to variations in horizon, equity risk premium and volatility assumptions.
Huub van Capelleveen, Harry Kat en Theo Kocken
The Journal of Portfolio Management