Deutsche Boerse has launched the DAX Risk Control Indices, which measure a hypothetical portfolio that adjusts the risk of the underlying DAX Index. This portfolio includes an investment in the DAX Index and the money market rate, as measured by the Euro Overnight Index Average (EONIA). The asset allocations of the new indices are shifted daily to maintain the desired risk levels.
“The DAX Risk Control Indices allow market participants to track the performance of a leading blue-chip index with a fixed risk level measured by market volatility. The major benefits of this index are the possibility for participation in the underlying market under normal market conditions, along with a significant protection against tail risk in highly volatile situations; and the flexibility to meet various risk appetites,” says Hartmut Graf, chief executive officer, STOXX Ltd. STOXX Ltd. is the marketing agent for the indices of Deutsche Boerse AG and SIX Group AG, including the DAX and SMI indices.
The DAX Risk Control Index replicates a portfolio that controls for risk by shifting between the risk-free money market rate (EONIA) and the risky asset (DAX Index). The index is calculated in four variants that aim to maintain a target volatility level of five percent, 10, 15 and 20 percent, respectively. If the risk level of a DAX Risk Control Index falls below these targeted risk parameters, then the allocation is automatically adjusted towards the underlying DAX Index. If the risk profile rises above the targeted levels, then the allocation moves towards the risk-free component (EONIA). A maximum exposure of 150% also is introduced to avoid extremely leveraged positions.
The DAX Risk Control Indices are available in total and excess return versions. The excess return index measures the return of the DAX Risk Control (TR) Index less the EONIA return. The index is calculated in euro. Daily history is available back to 18 May 1999.