MSR British Equities – Reversal, TV20 Index

Strategic Reversal Indices simulate trading a relatively simple counter-trend model in a futures contract or group of futures contracts. The model uses the widely known Black-Scholes option pricing model which builds a position opposite daily market movements based on the gamma statistic of Black-Scholes. The number of contracts that the index “owns” is determined by an algorithm based on the volatility exhibited by that futures market’s (or markets’) reversal positions over the previous six months. Annualized volatility is calculated by multiplying the standard deviation of daily returns by the square root of 252 (the estimated number of trading days in a year). In this case the index simulates applying the Reversal algorithm to the FTSE 100 futures contract while targeting an annualized volatility of 20%. FTSE 100 futures contracts are denominated in British Pounds, but MSR converts the daily returns to dollar based returns for this index.