Leveraged Reference Rates
Methodology Documentation for Leveraged Indexes
Introduction
Leveraged Reference Rates are financial instruments designed to amplify the returns of an underlying asset. They are characterized by a leverage factor, which dictates the degree of amplification applied to the underlying asset's returns. All of Vinter's reference rates can be used as underlying in calculating the Leveraged Reference Rate.
Overview
The Leveraged Reference Rates are only offered as daily rates and use end-of-day reference rates as underlying assets.
We redirect the reader to the Reference Rates documentation for an overview of the calculation methodologies used for the underlying reference rates.
Definitions
Underlying Symbol: The underlying symbol refers to the financial asset on which the leveraged index is based. This could be a single asset reference price or a multi-asset index.
Leverage Factor: The leverage factor defines the multiple by which the underlying asset's returns are amplified. For example, a leverage factor of 2 means that the leveraged index aims to achieve twice the daily return of the underlying asset. The leverage factor can be negative but not zero.
Mathematical Formulation
The value of a leveraged index is calculated using the following formula:
Where:
Value Represents the value of the leveraged index at the end of the current trading day.
Leverage is the leverage factor.
daily_return: The daily return of the underlying asset.
yesterday_value is the value of the leveraged index at the end of the previous trading day.
Calculation Steps
Determine the daily return: Calculate the daily return of the underlying asset.
Apply the leverage factor: Multiply the daily return by the leverage factor to determine the amplified return.
Update the index value: Using the leveraged return, update the value of the index as described above.
Starting Value and Inception date
The inception date for leveraged rates is 2023-01-01. The starting value is equal to the starting value of the underlying at the inception date multiplied by a scaling factor M.
By default, M=1. This factor is changed whenever there is the need for a rescaling.
Timeseries rescaling
When leveraged rate values are below a certain threshold, a rescaling (stock merge) is executed to avoid loss of precision. This is equivalent to rescaling all historical values for the target rate.
The procedure is as follows:
When daily values are below 1e-11, an alert is triggered, and a rescaling date is selected.
At the rescaling date, the factor M is multiplied by 1000.
All historical values are recomputed with the updated M to avoid loss of precision.
Illustration
Example Parameters
Underlying Symbol: btc-usd-p-11-d
Leverage Factor: 3
Yesterday's Closing Price of btc-usd-p-11-d: $66000
Today's Closing Price of btc-usd-p-11-d: $67320
Yesterday's Value of the Leveraged Index: 1000
Step-by-Step Calculation
Calculate the daily return of the underlying asset:
Apply the leverage factor:
Update the index value:
Thus, the value of the leveraged index at the end of the current trading day is 1060.
Monitoring
Our validation procedure continuously monitors the consistency of Leveraged Reference Rates, ensuring that no anomalous values are published. Additionally, all published data undergoes a secondary verification process, where the index values are compared to secondary independent data sources.
Administration
The Benchmark Administrator is the central recipient of input data with the ability to consistently evaluate the integrity and accuracy of input. The Benchmark Administrator is responsible for developing the indexes and controls all aspects of the provision of benchmarks. The Benchmark Administrator has established a permanent and effective oversight function, governance processes subject to periodic reviews and audits, policies regarding complaints, ethics, conflicts of interest, and contingency, and has established a clear internal organizational structure with consistent roles and responsibilities to identify, prevent, disclose, mitigate, and manage conflicts of interest.
The Calculation Agent is an individual or entity that is responsible for determining the value of an index and/or a financial instrument. The Calculation Agent calculates the index values in accordance with the index methodology. Upon the request of the Benchmark Administrator, the Calculation Agent shall provide all information available on the composition and details of the calculation of the requested index.
The Publication Agent is an entity responsible for the publication of index values.
Vinter is the benchmark administrator, calculation agent, and publication agent of this index family. Calculation agent services include benchmark development, integration, and technical maintenance. Benchmark administrator services include legal maintenance and oversight of benchmarks. Publication services include the distribution of benchmarks, methodologies, and benchmark statements.
Document Versions
Version 1.0
Initial version. June 04, 2024.
Disclaimer
Any product(s) offered with the indexes described in this methodology as underlying is not in any way sponsored, endorsed, sold, or promoted by Invierno, reg. no. 559207-4172 (“Vinter”). Vinter does not make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the index(es) “Index” described, licenses, used, or referenced under any Programme or Prospectus and/or the figure at which the Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated solely by Vinter. However, Vinter shall not be liable (whether in negligence or otherwise) to any person for any error in the Index. Vinter shall not be under any obligation to advise any person of any error therein. Vinter is a registered trademark owned by Invierno AB. Invierno AB and its indexes are protected by various intellectual property rights. All third-party use of Vinter and its indexes requires a licensing agreement by law with Invierno AB. The Index is a product of Invierno AB. Any Programme referencing the Index is not sponsored, endorsed, sold, or promoted by Vinter and/or its affiliates, and none of such parties makes any representation regarding the advisability of investing in such product(s), nor do they have any liability for any errors, omissions, or interruptions of the Index. The Programme is in no way sponsored, endorsed, sold, or promoted by Vinter and its Licensors and neither of the Licensors shall have any liability with respect thereto. Vinter is not a registered investment advisor, tax advisor or broker/dealer. The content of the index methodology or its related documents underlying is intended only to provide general and preliminary information and shall not be construed as investment, tax, legal or financial advice. The reader shall ensure that all of his or her investment decisions are not made based on the content of this document and shall be solely responsible for all financial losses made in connection with investment decisions. Nothing contained in the index methodology or its related documents constitutes a solicitation, recommendation, endorsement, or offer by Vinter or any third party associated with Vinter to buy or sell any financial instruments in this or any other jurisdiction. Although best efforts are made to ensure that all information on the methodology documents is accurate and up to date, occasionally unintended errors and misprints may occur. The index owner grants the benchmark administrator an exclusive, royalty-free, non-transferable, non-sublicensable license to use the index owner's intellectual property rights to fulfil the benchmark administrator's obligations under the index agreement and the Benchmarks Regulation, including registration of identifiers for indexes. Vinter is a registered Benchmark Administrator by Finansinspektionen (FI) and the European Securities and Markets Authority (ESMA) under Article 34 of the European Benchmarks Regulation (2016/1011).
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