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, Pit 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:
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.
Please refer to the Index Methodology Addendum document for further details about this Methodology.
For any queries regarding the Methodology or Data Inputs, please contact [email protected]