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Fimat Structuring Volatility Arbitrage Index

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LONDON (–Officials at Fimat Global Fund Services are putting the finishing touches on a new hedge fund index that will be launched by the end of the first quarter.

The Fimat Volatility Arbitrage Strategies Index is expected to include 10 volatility arbitrage funds that will be participating in the index from inception. The number of funds may increase as the popularity and the numbers of funds increase, according to Fimat officials.

Fimat executives are working on the methodology and calculation methods for the index, which will function as a benchmark for investors, said Philippe Teilhard de Chardin, managing director, global fund services at Fimat.

The index will be equally weighted and reporting will be done on a monthly basis. Performance is collected in the funds’ base currency and supplied as a percentage return or a net asset value per share or unit. Fimat will be collecting the info directly from hedge fund managers, requiring audited financial statements.

“We think it will be quite an active area,” he said of volatility arbitrage. He added that managers are not just long volatility. These hedge funds trade the implied volatility vs. the actual volatility of an identical or related tradable asset. Implied volatility is the volatility indicated by the price of an option in the market as calculated by financial models such as the famous Black-Scholes options pricing model. The implied volatility is used to monitor market opinion about the future price behavior of an asset.

“We are seeing keen interest from investors for this type of strategy whose correlation characteristics are nil to negative to most other alternative investment strategies as well as being nil or minimal to general market prices in periods of financial stress,” Mr. Teilhard de Chardin said.

His group, Fimat Global Fund Services is the prime brokerage team of Fimat International Banque SA (U.K. branch). The group is going beyond its prime brokerage client base to find volatility arbitrage funds to include in the index, in its global search. While Fimat is known as a prime brokerage firm, officials are also managers of market information and providers of alternative investment research. The Fimat Group, the global brokerage organization, is part of the Societe Generale Group.

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