UBS announced its collaboration with Engle Volatility Consulting LLC (“Engle Consulting”), the research principal of which is Nobel Laureate Dr. Robert F. Engle, on a methodology for a series of volatility controlled indices. The series uses rules-based systematic investment strategies that aim to provide enhanced exposure to various underlying assets using a novel forward-looking intraday volatility forecasting methodology developed with Dr. Engle.

The first of the index series will aim at improving the risk-return profile of major benchmark equity indices in order to serve the increasing demand in retirement products and help investors achieve their financial goals.

Ghali El-Boukfaoui, Head of Insurance Sales at UBS Investment Bank, said: “We are excited to collaborate with Dr. Engle to bring this innovation to the retirement market. Volatility control methodologies have, for the longest time, been overlooked from an innovation standpoint and we take the view that a good volatility forecasting method can lead to enhanced performance.”

El-Boukfaoui adds: “Dr. Engle has spent his career solving for the volatility forecasting problem as an indicator for price actions, and the goal of our collaboration is to bring an innovation that positively impacts the financial outcome of investors.”

“The heart of a good volatility-control mechanism is a good forecast of volatility,” said Dr. Robert Engle. These indices are designed to give investors exposure to benchmarks with a competitive risk-return profile by applying an innovative forward-looking intraday volatility control based on a volatility forecasting model.

The model is based on Dr. Engle’s research and aims at producing a more reactive intraday allocation mechanism that can rapidly adapt to changing market conditions and more accurately predict volatility by using a variation of the ARCH model.

Source: UBS