Risk Control Indices are ideal instruments for the investors who want to limit the volatility of their investment on an equity index and/or a market. Although index options and warrants may be good alternatives for hedging purposes, their costs may increase substantially during the high volatility periods. Since volatility of a Risk Control Index is predetermined and limited, costs of derivatives written on these indices would decrease accordingly.
With Risk Control Indices, investors have chance to invest in an index portfolio which includes repo and underlying index with one transaction. Weights in the portfolio are adjusted daily according to realized volatility of the underlying index. Weights move toward repo index during the high volatility periods and move toward underlying index during the low volatility periods.
BIST Risk Control Indices are calculated for the target volatility levels of 10%, 15%, 20%, 25% and %30 for each underlying index. There are various options of target volatility level and investors can choose the underlying index and target volatility level according to their investment strategy and risk perception. All BIST Risk Control Indices are calculated in both total and excess return basis. While Excess Return Index series reflects the daily return of the underlying index proportional to its weight in the index portfolio, Total Return Index series reflects the return of the index portfolio which includes both underlying index and repo index.
To take advantage of potential return of the underlying index during the low volatility periods, maximum weight limit of 150% is applied for the underlying index.
Indices are calculated from the closing values of underlying index and repo index. Base date of the indices are December 31, 2003 and base values are 100.
BIST Leveraged Indices
The objective of leveraged indices is to reflect the return of a reference index (underlying index) by multiple of the leverage factor in the same direction. It is assumed that, leverage is obtained by borrowing money and investing more in underlying index. The borrowing costs of the leverage is supposed to be on daily repo interest rates. Thus, the index is calculated by deducting the borrowing cost (return on BIST-KYD Repo (Net) Index) from the return on underlying index.
BIST Short Indices
The objective of short indices is to reflect the return of a reference index (underlying index) by multiple of the leverage factor in the opposite direction. It is assumed that, short position is obtained by borrowing equities in underlying index, selling them short, and investing the fund generated, in repo. Thus, the index is calculated by adding the return on lending (BIST-KYD Repo (Net) Index) to the return on underlying index.
BIST Leveraged and Short Indices:
|BIST Leveraged and Short Indices||Underlying Index||Leverage Factor (LF)|
|BIST 100 Short||BIST 100||-1|
|BIST 100 Short 2X||BIST 100||-2|
|BIST 100 Leveraged 2X||BIST 100||2|
|BIST 30 Short||BIST 30||-1|
|BIST 30 Short 2X||BIST 30||-2|
|BIST 30 Leveraged 2X||BIST 30||2|
Indices are calculated from the closing values of underlying index and repo index. Base date of the indices is April 1, 2016 and base values are 1000.