Tracker Index Methodology

Index Description

Tracker Indices also known as the T-series Indices at AiLA are designed to deconstruct an illiquid or non-tradeable asset into a basket of tradeable assets. T series indices provides two distinct value to the users:
a) It deconstructs an illiquid asset price into a basket of liquid asset prices which are tradeable and verifiable.
b) It brings transparency to an otherwise opaque non-exchange traded asset.

T-series indices are used by clients including but not limited to:

  • Corporations to de-risk illiquid portfolios
  • Banks to de-risk illiquid price risk and offer financial instruments tied to these indices
  • ETF issuers to issue investible assets tracking these Indices for the retail market and
  • Exchanges to list these indices enabling market participants to transfer risk.

Detailed Methodology

Regression Methodology for Tracker:

  • There are two logics of Tracker Methodology – T and T+1
    • In the T logic, the regression happens between today’s value of the Target Notional against the today’s settlement values of the Basket Assets’ Notional values, whereas, in the T+1 logic, it would be against the yesterday’s settlement values of the Basket Assets’ Notional values
  • The coefficients of the regression are the #Lots of each of the Basket Assets required for the tracking purpose everyday, but need to be adjusted to track the Target Notional Value efficiently
  • On the days when no regression happens, the #Lots of all the Basket Assets used for regression will remain constant and the #Lots of the daily rebalancing asset will be adjusted for tracking purpose

Adjusting the Coefficients:

  • The #Lots of Basket Assets are converted into weights by calculating the product of each of the Basket Asset Notional Value per lot with its respective #Lots divided by the Target Notional Value
  • The weights obtained are for the execution of next business day’s open or close depending on the T or the T+1 logic respectively
  • On the days when the rebalancing does not happen, the weights, and the Target Notional Value (the denominator in the weights calculation) remain same as the previous day

Index Calculation from Weights

  • The rounded value of previous day’s target notional value multiplied by weights of the basket assets divided by the prices of the basket assets in USD at the time of execution will provide us with the units of the basket assets bought at the time of execution
  • The units at the time of execution are further multiplied by the price at the time of execution to obtain the actual notional value of each of the basket asset and the sum of the notional values of all the basket assets is the Tracker Notional Value
  • The Tracker Notional is not calculated on the days when all the Basket Assets have an exchange holiday, and the next calculation of Tracker Notional value happens on the day when any or all of Basket Assets do not have an exchange holiday
  • Daily Returns are considered as the percentage between the Tracker Notional Values from the previous day to the current day
  • Cumulative Returns are calculated as
  • Tracker Index Value is calculated as
  • The Cumulative Returns on the first day at the start of the index would be zero, that is, 𝐶𝑅(1)=0 and 𝑇𝐼𝑉(1)=100 which means every index would start with a value of 100 and the path of the index would be very similar to the path of the Target Asset

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]