The following Methodology details how the daily index value for AiLA Alpha Indices are calculated.

**Business Day** for an asset refers to a day where the asset is trading and has a settlement Close Price.

**Asset** refers to one of the selected components of the Index. Assets can be in the form of a fixed contract or a rolling contract.

**Price**, P_{it} refers to the close price of Asset i on trading day t.

**Product** refers to the AiLA Index, where its output are daily weights for each asset in the index.

**Mid Cap Logic** requires the execution of instructions on the close of the next Business Day. This is typically used for indices with a capacity lower than US$1 billion.

**Large Cap Logic** is typically used for indices with a capacity of US$1bn and above. It includes Mid Cap Logic in combination with the two constraints described below:

**Daily Rebalancing Caps**– where we pre-assign the maximum change in weight across the curve for a given asset. (Further detailed in Section 5ii-iii)**Trade Rebalancing Period**(Further detailed in Section 6)

The AiLA Alpha Index suite of products is designed to deliver absolute returns investment Alpha to investors. The suite of products is asset agnostic. However, it is presently focused on Commodity assets and equity indices as the underlying assets. These index products are designed to be highly liquid and tradable and constructed taking into account market liquidity. In addition, as AiLA uses opportunistic allocation to generate alpha, the strategy might not be fully allocated all the time.

The Index Methodology calculation starts from using the output of AiLA’s systematic upstream process to decide if we should go Long, Short or stay flat on a given asset. As part of the index construction process, notional weights would have been assigned to each asset as part of the index. On any given trading day, these Fixed weights would then be assigned to each asset based on the output of the systematic upstream process.

As we would like to deploy as much capital as possible within a strategy, we would scale up the total fixed target weights within the strategy before then taking into account Asset and Sector weight caps. These Asset and Sector weight caps are risk constraints that we would like to implement for a given strategy.

We then take into account liquidity constraints as the index seeks into incorporate actual market liquidity. This is done by setting a Daily Rebalancing Cap for each asset under the Large Cap Logic, ensuring that the strategy can be executed. As the Sector constraints and Daily rebalancing constraints are mutually exclusive, we always prioritise Sector risk constraints.

If the Large Cap Logic is in place, we ensure that all positions are closed with ample time before the expiry of a contract. Therefore, we will begin closing all active positions at least seven Business Days before the expiry of a contract.

Finally, to obtain the index values, we apply simple arithmetic calculations to calculate the Units, and Daily PNL for each Index taking into account the change of asset prices on each trading day.

- As part of the portfolio allocation process, a Notional Weight is assigned to each asset, where this is the Weight deployed to each asset if all assets have an active trading signal on a given day. This is also known as the Fixed Target Weight for Asset i,
_{FW}i. - The technology provides the directional bias of Long or Short positions.
- On any Index Business Day t, FW
_{i}is allocated to Asset i, where there exists a Long or Short position. - Under both Mid Cap and Large Cap Logic, Fixed Target Weights refer to the weights applicable at close of the following day.
- Short Weights are represented by a negative weight, while Long Weights are represented by a positive Weight.
- The absolute sum of Fixed Target Weights should be always less than or equal to 100%.
- At the end of every day new weight is calculated for execution on the following day’s close.

- To deploy as much capital as possible, Fixed Target Weights are scaled up to deploy 100% of capital where possible, while being constrained by the Asset and Sector Caps that have been decided during the Product construction process. These constraints are further elaborated in Sections 3 and 4.
- For a given asset i, it is calculated as follows:

- Each Asset is assigned Asset Caps across the curve under the following four Durations to Expiry Date :
- ≤ 1M (≤ 22 Business Days)
- 1 – 3M (23 – 66 Business Days inclusive)
- 3 – 6M (67 to 132 Business Days inclusive)
- > 6M (> 132 Business Days)

- Asset Caps determine what is the maximum Target Weight we can allocate to an Asset on any given Business Day and this is decided during the Product construction process.
- On business day t, the Effective Asset Cap AC
_{it}depends on the number of Business Days to Expiry Date.

- During the Product Construction process, we decide on a General Sector Limit, GSL which must be adhered to by the Target Weights. For example, we can decide that the GSL for Oil is 30%. This means that on any given Business Day, the total Target Weight of all assets in the Oil Sector should not exceed 30%.
- On each Business Day, each asset has an Asset Specific Sector Limit which is a function of the Asset Adjusted Weights of all assets within the same Sector as well as the Sector Limit
- For each sector, s and Business Day, t,

- Sector Adjusted Target Weights for each day are then calculated for each asset

- The
**Actual Weight**(𝑤^{𝐴}(𝑡,𝑖)) is the weight for asseti on Effective Datet. There will be no weight instruction for an asset during an asset holiday, in such cases, use the Actual Weight for the previous Effective Date for End-of-day Units calculation. - The Unadjusted Actual Weight , UAW
_{it}refers to the Actual Weight before the final Sector Cap constraint adjustments detailed in Section 5vii. **Under Mid Cap Logic:**

**Under Large Cap Logic:**

Each Asset is assigned Daily Rebalancing Caps across the curve under the following four Durations to Expiry Date:- ≤ 1M (≤ 22 Business Days)
- 1 – 3M (23 – 66 Business Days inclusive)
- 3 – 6M (67 to 132 Business Days inclusive)
- > 6M (More than 132 Business Days)

- On any given business day, an asset has an Effective Daily Rebalancing Cap RC
_{it}where:

In other words, 𝑅𝐶_{𝑖𝑡}is the maximum allowable change in 𝑈𝐴𝑊_{𝑖𝑡}between Business Day 𝑡 and 𝑡−1, where 𝑈𝐴𝑊_{𝑖𝑡}is the Unadjusted Actual Weight - To determine the Unadjusted Actual Weight on any given day, we need to consider the difference between the Sector Adjusted Target Weights today and the Unadjusted Actual Weight yesterday in comparison to the Effective Daily Rebalancing Cap:

- Sector Cap and Daily Rebalancing Cap constraints are mutually exclusive. Therefore, given the above detailed logic, there could be cases where

- The Sector Cap Constraint is prioritised over Daily Rebalancing Caps, therefore a further adjustment to AW is required when the above inequality occurs on a given day t

- Under both Mid Cap and Large Cap Logic, Actual Weights are implemented on the following day’s close. Therefore, on any given business day t, AW
_{it}is used for the calculation of End of Day Units on Day T+1 and PNL on T+2. This will be further explained in Section 8.

- To ensure that Actual Weights are 0 on the Contract Expiry Date, on the 7
^{th}Business Day before the Contract Expiry Date inclusive, we start the Trade Rebalancing Period. - If we have an existing position on day t (i.e. |AW
_{i(t-1)}|>0, where day t is the first Business Day of the Trade Rebalancing Period, then SW_{it}=0 and this equality remains until the Contract Expiry Date. This means that we will start exiting any existing positions when the Trade Rebalancing Period is hit, and we will not enter any new positions until the Contract expires.

- If the index is denominated in the asset’s domestic currency, End of Day Units is determined as follows:

- If the index is denominated in USD and the asset is denominated in another currency, End of Day Units is determined as follows:

- If the index is denominated in the asset’s domestic currency, Index PNL for a given Asset is determined as follows,

- If the index is denominated in USD and the asset is denominated in another currency, Index PNL for a given asset is determined as follows,

- Index Value on a given Business Day is determined as follows,

- Daily Index Returns is determined as follows,

- Cumulative Index Returns is determined as follows,

- The default currency used for valuation of all asset prices is USD, i.e. including the PNL and index calculation
- In case another index currency is specified through the user option, or an asset’s domestic price is in another currency, all prices are converted into that index currency, using London 4pm Fixed rates on the same business day as the price
- Therefor the index performance should reflect the prevailing value of its assets in the given index currency

- There are Index Business Days where not all but at least one asset is trading (E.g. in an index which has some assets on CME calendars and others on LME calendars, only one of the two is trading)
- On such Index Business Days, the End-Of-Day Units and Profit and Loss of the Assets that are
must be calculated. However, given that prices cannot change on an asset Holiday, the Profit and Loss will surely be 0 for these assets. If there is a non-zero Profit and Loss for that Index Business Day which means that there is a change in Index Value, then the Units calculated for the Assets that are not trading will be different.__not trading__

For any queries regarding the Methodology or Data Inputs, please contact [email protected]