Delta One Solutions

Guide to Blended Indices

Index
Page 1

Page 2
Page 3
Page 4

Introduction
Naming Convention
Composition
Header Information
Validation
Example
Blend Request Form

2012 DeltaOne Solutions | www.deltaonesolutions.com

Samuel Barber

Blend Methodology
1. Introduction
A blend is the amalgamation of two or more securities (with percentage weightings assigned to each) and
as such requires custom treatmeant. For example, the IBOXX EUR TOTAL/MERRILL LYNCH EG00
(CUST005) Blend has the following structure:
Underlying Index

Weighting

IBOXX EUR FINANCIALS (QW5L)

15%

IBOXX EUR NON FINANCIAL (QW51)

55%

THE BOFA MERRILL LYNCH EURO GOVERNMENT INDEX

30%

At DeltaOne we have devised an approach to deal with the creation and maintainence of blends (with a
distinct naming convention, calculation methodology and validation) that only requires the composition
of the underlying indices. The following document will outline how we plan to treat these blends.

2. Naming Convention
There will be a distinct naming and identifier convention for all blends to make them easier to track for
the user. A unique exchange ticker will be applied to each blend dependent on the source of the request.
The exchange ticker will have the prefix CUST, followed by a client code and a unique ID number. For
example, if Delta One wanted an internal blend built it would take the form CUSTDO001. The
SecurityName itself will be flexible to match the request of the client but will have the exchange ticker in
brackets as the suffix. As these are custom builds, if the client requires any other identifiers they can ask
for this in their original request. A new SecurityType: Blend has also been created.
3. Composition
The constituents of a blend will consist of the unification of the constituents in the underlying indices,
where the number of shares for each constituent is equal to the NOSH * index weighting factor. In the
cases where there is a constituent overlap between the underlying indices, these values will be summed to
give one constituent. The application of all corporate actions will be applied to the blends as and when
they are applied to the underlying indices and dividend adjustment will be taken into account with the
cash value.

2012 DeltaOne Solutions | www.deltaonesolutions.com

Samuel Barber

4. Header Information
The header information will be calculated in such a way that it tracks the performance of the
underlying indices. As such we set the index value to 1000 (a reasonable value) on the first run and

hence calculate the initial divisor by = 1000 . Following this, the calculation
methodology is as so:

At close:
i)

= =1

ii)

iii)

At open:
iv)

= =1

v)

vi)

This allows clients to easily track the performance of the Blend. The Index Value will stay the same
between open and close and the divisor will only change if there has been a dividend adjustment that
affects it. Due to this setup, it is easy to monitor how the blend has performed over a period of time.

5. Validation
The validation on blends directly compares the data from the blend itself with the values in the underlying
indices, which have already passed validation. The following conditions must be satisfied:
i)

= =1

This verifies that the MarketCap of the blend itself is the marketcap of each of the underlying indices
multiplied by their respective weightings. This verifies the constituent data.
ii)

0 < 5

This verifies that there is no significant difference between the sum of the counts of the constituents in the
underlying indices and the count of the constituents in the blend itself. There is some level of tolerance
here due to the possibility of constituent overlaps. This can be adjusted if any underlying indices are
known to either have a significant number of overlaps or none at all.

2012 DeltaOne Solutions | www.deltaonesolutions.com

Samuel Barber

6. Example
The example below demonstrates the calculation methodology:
Index Value=MarketCap/Open Divisor (ii)
= =1 () (i)

ExchangeTicker
CUST022
CUST022
CUST022
CUST022
CUST022

AsAtDate
06/03/2015
09/03/2015
10/03/2015
11/03/2015
12/03/2015

Value=1000 on Day 1

MarketCap Value
CloseDivisor
OpenDivisor IsOpen
1327127419
1000 1327127.419 NULL
0
1325527117 999.144651 1326661.876
1326661.876
0
1329370091 1002.05292 1326646.594
1326646.594
0
1329347181 1002.04962 1326628.099
1326628.099
0
1326611.291
1329330339 1002.04962 1326611.291
1

Index Value open (11/03/2015) = Index Value close (12/03/2015) (v)

Divisor =MarketCap/Value (vi)

Close Divisor=Open Divisor (iii)

The key points to note are:

1) It is very simple to track the performance of the Blend in terms of percentage points
2) The Open/Close Divisor are constant intraday but change between Close and Open due to
dividend adjustments.
3) The Index Values change between Open and Close but stay constant between Close and Open.

2012 DeltaOne Solutions | www.deltaonesolutions.com

Samuel Barber

Blend Request Form

LICENSE IN PLACE FOR
UNDERLYING INDICES
REQUESTED BLEND NAME
UNDERLYING
INDICES/WEIGHTING

YES/NO/UNKNOWN

Weighting

INDEX

ADDITIONAL IDENTIFIERS
REGION USAGE
REQUIRED BY

US / EUROPE / APAC
DATE

INDIVIDUAL REQUESTING

2012 DeltaOne Solutions | www.deltaonesolutions.com

Samuel Barber