Hang Seng Indexes in Hong Kong has this week launched HSI Volatility (VHSI) and Hang Seng Risk Adjusted index series.
The VHSI measures the 30-calendar-day expected volatility of the Hang Seng Index using the prices of the two nearest-term expiration months of HSI options trading on the Hong Kong Exchange's derivatives market.
The risk-adjusted series tracks the return of a portfolio that is dynamically allocated between an equity index and a cash position, with a predetermined volatility. If volatility moves above the pre-defined target, the cash position is increased to bring the realised volatility down and vice versa, subject to a maximum equity allocation of 100%.
Although the VHSI is based on the well-known US Vix model, the way the index performs is likely to be idiosyncratic to Hong Kong, so it will take a little time for traders to become familiar with it, Hang Seng Index head, Vincent Kwan told SRP.
"It's a question of education and these things take time," said Kwan. "It's good that people will be able to get a better understanding of volatility and how it works using this benchmark."
Kwan said the firm, which has its own team of developers, has received enquiries from a number of volatility traders, is growing its strategy research capability and becoming more of a 'solutions provider' as it sees increased demand for sophisticated underlyings.
Kwan said he expects it to take some time for the market to launch retail offers based on the VHSI, but hopes to see some products using the volatility-controlled indices shortly. The firm is also planning a series of education courses and seminars to help developers and managers understand how they can use the new indices.