- What are the S&P Riskcasting Indices? The S&P Riskcasting Index Series is comprised of indices that allocate between equity and fixed income indices based on a Riskcasting signal generated by S&P DJI’s partner firm, Bramham Gardens. The objective of the index series is to allocate a higher weight to the equities under potentially favorable market conditions and conversely a higher weight to fixed income under potentially less favorable market conditions.
As of the launch date, the S&P Riskcasting Index Series includes the following indices that change allocation to the relevant S&P equity index and the S&P 10-Year U.S. Treasury Note Futures Index.
- Who is Bramham Gardens? Bramham Gardens is a Paris-based firm that specializes in artificial-intelligence-driven investment strategies that screen, anticipate, and signal market risk increases with the goal of delivering a smoother return stream while investing in equity assets. The team is comprised of several PhDs in Financial Economics and Machine Learning.
For more information about Bramham Gardens, please refer to the website: http://www.bramham-gardens.com/.
- What is the Riskcasting signal? Using information from equity options based on the S&P 500, the goal of the Riskcasting signal is to determine when to allocate to equities and when to allocate to fixed income.
Data for the Riskcasting signal is first obtained from an S&P 500 option-derived volatility surface that measures the spectrum of investor risk aversion levels toward the equity market and the evolution of their attitudes. All volatility surfaces are normalized and transformed using techniques to combine statistics and signal processing. The outcome is then used to generate the Riskcasting signal. To be more precise, this signal aggregates the answers to the following three questions, asked by means of machine learning.
- How likely is the S&P 500 to rise more than 1% tomorrow?
- How likely is the S&P 500 to fall more than 1% tomorrow?
- How likely is the S&P 500 to exhibit high volatility tomorrow?
Based on the consistency of the three answers, the Riskcasting signal is generated, recommending either a positive, neutral, or negative state. This determined state is then used for the allocation in the S&P Riskcasting Index Series.
It is important to note that the process of updating and learning takes place on a daily basis, relying on a rolling window of five years.