DISC 5.2 Volatility calculation methodology – general

1. For the purposes of this section, a consumer composite investment's volatility track record:
2. (1) is data comprising the weekly pricing information or, if such information is not reasonably obtainable, monthly pricing information for:
   1. (a) the past performance of the consumer composite investment itself via its performance information;
   2. (b) the simulated past performance of the consumer composite investment, calculated on the basis of the historical values of the relevant underlying or reference assets; or
   3. (c) the past performance of an appropriate benchmark, meaning a benchmark with a reasonably similar investment mandate, investment objectives or strategy, and underlying or reference assets as the consumer composite investment; and
3. (2) covers a period of 10 consecutive years, ending on a date no earlier than 60 days before the date the manufacturer prepares or reviews (for the purposes of DISC 3.2.2R) a product summary for that consumer composite investment.

Where the consumer composite investment has less than 10 years of past performance history, the manufacturer must simulate past performance for the remainder of the 10 year period unless it reasonably cannot do so, in which case, it may use an appropriate benchmark.

In gathering the data for the volatility track record, the manufacturer must ensure that:

1. (1) the pricing basis adopted for performance information in DISC 5.2.1R(1)(a) is consistent throughout the period in DISC 5.2.1R(2) and provides a fair representation of the performance of the consumer composite investment;
2. (2) the approach to simulating past performance in DISC 5.2.1R(1)(b), or to measuring the past performance of an appropriate benchmark in DISC 5.2.1R(1)(c), as applicable, is consistent throughout the period in DISC 5.2.1R(2) and provides a fair representation of the likely volatility of the consumer composite investment over that period; and
3. (3) where relevant, the data is appropriately adjusted to reflect inflows and outflows of funds from the consumer composite investment and the effect of any smoothing over the period in DISC 5.2.1R(2).

1. (1) The volatility of the consumer composite investment must be computed, and then rescaled to a yearly basis, using the following standard formula:

1. (2) The returns ( r _{f, t} ) in (1) are measured over T non-overlapping periods of the duration of 1/m years.
2. (3) This means m=52 and T=520 for weekly returns, and m=12 and T=120 for monthly returns, and where r̄ _f is the arithmetic mean of the returns of the fund over the T periods: