Synthetic Index

Synthetic Index

The purchase of futures contracts and/or options such that one's exposure and potential payout resemble that of an index. One creates a synthetic index if one believes doing so will result in a higher return than a security tracking a real index.
References in periodicals archive ?
In the early years of the FRBR's index, from 1993 to 2001, the survey-based diffusion index and the synthetic index are somewhat far apart.
The possibility of using statistical techniques for the selection of variables that make up the synthetic index also constitutes a favorable point in this process.
As a result, OIRA also began to emphasize CEA, which attempts to account for effects like these by assigning a number, tied to some kind of synthetic index, to the benefit side of the equation.
Then they show that, on average, the spread for a synthetic index futures contract is 8-14 times the spread for the actual index futures contract, even after adjusting for differences in trading volume and contract size.
Finally, constructing the synthetic index can avoid the multicolinearity problems that would arise if the elemental indicators were used directly.
Additionally, left ventricular percentage fractional shortening was calculated as a synthetic index of left ventricular systolic function [18].
From an institutional perspective, a synthetic index portfolio position can be created by a long position in an index future combined with the holding of a money market instrument.