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S&P expands family of risk control indices

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Standard & Poor’s has launched additional risk controlled versions of its S&P 500, S&P Europe 350 and S&P/ASX 200 stock market indices.
 

Standard & Poor’s has launched additional risk controlled versions of its S&P 500, S&P Europe 350 and S&P/ASX 200 stock market indices.
 
The risk control indices launched are:

• S&P 500 Daily Risk Control five per cent Index
• S&P 500 Daily Risk Control 15 per cent Index
• S&P 500 Monthly Risk Control 12 per cent Index
• S&P Europe 350 Daily Risk Control ten per cent Index
• S&P/ASX 200 Daily Risk Control five per cent Index
• S&P/ASX 200 Daily Risk Control ten per cent Index
• S&P/ASX 200 Daily Risk Control 15 per cent Index
 
Standard & Poor’s risk control methodology aims to control the level of risk of an index by establishing a specific volatility target and managing the risk relative to that target. In order to achieve this goal, the methodology uses an existing Standard & Poor’s index and a risk free rate. If the risk level reaches a threshold that is too high, the exposure to the index is decreased in order to maintain the target volatility. If the risk level is too low, then the index will employ leverage to maintain the targeted level of volatility.
 
‘Volatility targeting is a common practice in structured products, but integrating volatility control within index rules is a recent innovation,’ says Steve Goldin, vice president of strategy indices at Standard & Poor’s Index Services. ‘As the only major index provider to offer risk control measures within its indices, Standard & Poor’s is providing the market with increased transparency and an important means of controlling the level of volatility associated with an index.’

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