EFTA01121231.pdf

db Index Development 24 March 2014 DBIQ Index Guide DB Commodity WTI Short Volatility II Index Summary The OB Commodity WTI Short Volatility index is based on a systematic short volatility strategy. The Index comprises of 3 equally weighted sub-indices reweighted on an annual basis. Each sub-index replicates a strategy to sell straddles on 3 month futures on WTI. The delta of the straddles in each sub-index is calculated on a daily basis and hedged at the market close. The straddle position is held to option expiry and then rolled for further 3 months. The index return is based on the return from straddle position and the delta hedged position. Index Suite The index is calculated and published to Bloomberg in the following versions; Return Currenc Bloomberg Index Name Type y Ticker OB Commodity WTI Short Volatility II Index ER USD DBCMWSV2 OB Commodity WTI Short Volatility II Sub index I ER USD DBCMWS12 OB Commodity WTI Short Volatility II Sub index II ER USD DBCMWS22 OB Commodity WTI Short Volatility II Sub index III ER USD DBCMWS32 Index Development Contacts: London: +44 (0)207 545 0505 Hong Kong: +852 2203 6786 New York: +1 212 250 8998 A Passion to Perform. Deutsche Bank EFTA01121231 db Index Development Key Index Information Index Inception Date 14- Dec-2006 Index Live Date 11-Jul-2014 Index Calculation Holiday Calendar NYM Index Rebalancing Date Business day corresponding to the relevant December Option Expiry Date Sub Index Rebalancing Date Business Day corresponding to the relevant Option Expiry Date of option based on every third month future Index Rules and Calculations Market Data Sources Commodity future and option prices are based on exchange close settlement prices for the relevant contract and exchange. Sub index Calculation Each of the three sub-indices will have an identical construction with the exception of the Rebalance Date. Each of the sub indices sells an equal number of call options and put options on the rebalance date (Straddle position). Every day the delta position implied by these options is hedged by buying the delta amount of underlying future. At the expiry date of the option, the index rolls into the next future contract in the index. The 3 sub indices roll their position based on following month's futures on rebalance dates Index Name Future Contract Roll schedule DB Commodity WTI Short Volatility II Sub Index 1 H-M-U-Z DB Commodity WTI Short Volatility II Sub Index 2 G-K-Q-X DB Commodity WTI Short Volatility II Sub Index 3 F-J-N-V The index Level for each of the sub index on a day t is sum of 1)the index level on previous day. 2) the sum product of a)number of options sold on previous rebalance date and b) the change in option price from previous day. for each of the call and put. 3) product of a) Number of options sold, b) The implied delta position on previous day. c) The change in underlying future price from previous day We calculate each of the sub Index ER level on all valid London City business days as follows. IL(t) = IL(t - 1) + - +Uo.,., x[C(t -1.T„,,S „ K „at e )-C(t,7'„,,S „ K , a 7` )+ P(t - S„ K, )- P(t .T, _ I „ K „at e )] Where: IL(t) = Index level on day t Rebalancing Date immediately preceding t. In case t is a rebalancing day. r will be the previous rebalancing date. Si = The respective future price for the WTI future on day t Us.,., = Unit holdings for the underlying future for the respective sub index. On any day t, the new unit holdings for the underlying future are adjusted by the delta of the options on previous day. This amount is calculated as. •2• EFTA01121232  ir IL(r) ,,,, U =1 x Sr — -.„ ) x kA 7- - ±A,,-i 2*T NI= cl)(di ) A P"; = (1)(di ) —1 is the standard normal cumulative distribution function and di is defined in section Option Price Calculation. Uo.r., = Unit holdings for the call and put options for the respective sub index. On the rebalance day r the amount of call and put options to be sold are calculated as. 7r IL(r) U„.„ - I- x 2 *T S T is equal to the time to maturity(ACT/365 basis) of the option on rebalance date r. It is calculated as. E- r T- 365 The next rebalancing date of the sub index (also the expiry of the option) The respective future price for the WTI future on rebalance day r „S, , K, , ,Ar ) = The price on day t of a call option with expiry L I. strike Kr, evaluated using Black's model with volatility a;4( , future price St. and discount factor equal to 1. These are calculated as given in section Option price calculation except for the rebalance date for the old security. For the old security on rebalance date, the intrinsic value of the option is considered as its call option price, which is calculated as max (0.S, - K1). The prices for old security on the expiry date are not published by exchange. P(t,T_I „5„ Kr ,a,Ar ) = The price on day t of a put option with expiry Tr.,. strike K,. evaluated using Black's model with volatility e t , future price S,. and discount factor equal to 1. These are calculated as given in section Option price calculation except for the rebalance date for the old security. For the old security on rebalance date. the intrinsic value of the option is considered as its put option price, which is calculated as max (0,K, - Sr).. The prices for old security on the expiry date are not published by exchange. Option Price Calculation For each sub index the strike of the option on the rebalance date is calculated as the closest integer strike to the at the money future price on such date. The index sells a call and a put at this strike on rebalance date for the option related to respective future. The expiry of these options is the option expiry corresponding to the future. The exchange publishes the option prices corresponding to each integer strike. The below formulae are used to calculate the price using the after cost volatility. qt, TR St,Knor) =514O0— Kr4)(d2) P(t, TR+1, St J11, (49= Kr cl'(— d2) — St (DEC •3• EFTA01121233 db Index Development In JZ(TR+i — t) r oiTM71R In(&) —;(41 ) 2(TR+i— t) cricn ni AC c is the after cost implied volatility of the relevant option and it is obtained from the implied volatility of the relevant exchange traded option as cite =v, — max(4%*cr„0.75%) Where, a, is the volatility of the call option which has strike K, and is calculated using standard Black's model. Kr = Option strike. It is the integer value closest to the at the money forward future price on the rebalance date r. For avoidance of any doubt, the strike will be rounded up in case of a tie. Main index Calculation DB Commodity WTI Short Volatility II Index is calculated on each valid London city business day as follows, IL(t, ER). ILO - 1, ER) + ±(1(i, t, ER) - 1(i, t ER))x NO -1,0 1.1 Where: IL(t,ER) Index level of DB Commodity WTI Short Volatility II Index on day t i(l,t,ER) Index level of sub index ion day t N(t,i) Notional holdings of sub index i on day t Notional Holdings The index rebalances on the option expiry date of Z contract of WTI Crude every year. On any other day the notional holdings remain constant, N(t,i) = NO It t is the rebalancing date ILO, ER) N(t,i) = 3* (/(i,t, ER) •4• EFTA01121234 db Index Development 24 March 2014 DBIQ Index Guide Index Guide Disclaimers This document is intended for information only and does not create any legally binding obligations on the part of Deutsche Bank AG and/or its affiliates ('DB'). This document is intended to provide a summary of the index it purports to describe. No warranty or representation is made as to the correctness, completeness and accuracy of the information. 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