Factor-Score-Weighted Index
Install and import#
npm install fintech-algorithmsimport { calculate } from "fintech-algorithms/index-and-benchmark-engineering/alternative-weighting/factor-score-weighted-index";Signature#
calculate(data)Weight by a composite of factor scores — value, quality, momentum — with a floor so negative scores cannot produce negative weights.
Parameters#
| Name | Type | Notes |
|---|---|---|
data | { records: Record[]; factorWeights: Record<string, number>; scoreFloor: number } | factorWeights blends the factors; scoreFloor clips the composite from below, which is what keeps a short position from appearing in a long-only index. |
Returns#
{ ids, compositeScores, weights }
The blended score per constituent and the weights it produces.
Errors#
- When the factor weights do not reference any available score — throws
Complexity: time O(n × factors),
space O(n).
Worked example#
verified This is the worked example published in the article, replayed by the test suite on every run. The output cannot drift.
Input#
{
"records": [
{
"id": "A",
"value": 12,
"quality": 18,
"momentum": 8
},
{
"id": "B",
"value": 8,
"quality": 15,
"momentum": 12
},
{
"id": "C",
"value": 15,
"quality": 9,
"momentum": 5
}
],
"factorWeights": {
"value": 0.4,
"quality": 0.35,
"momentum": 0.25
},
"scoreFloor": 0.1
}Call#
calculate(data)Returns#
object with 3 fields: ids, compositeScores, weights
{
"ids": ["A", "B", "C", "D", "E"],
"compositeScores": [0.639323, 0.066682, -0.176343, -0.273927, -0.255736],
"weights": [0.541951, 0.235666, 0.10568, 0.053486, 0.063216]
}Diagrams#
Calculation flow#
Factor-Score-Weighted Index calculation flow
flowchart LR
A["Point-in-time inputs"] --> B["Validate units and timing"]
B --> C{"Contract feasible?"}
C -->|No| D["Reject with reason"]
C -->|Yes| E["Calculate Factor-Score-Weighted Index"]
E --> F["Recompute invariants"]
F --> G{"Checks pass?"}
G -->|No| D
G -->|Yes| H["Publish audited output"]
Factor-Score-Weighted Index methodology state
stateDiagram-v2
[*] --> FrozenInputs
FrozenInputs --> Validated: contract passes
FrozenInputs --> Rejected: missing or infeasible
Validated --> Calculated: apply named rule
Calculated --> Audited: invariants pass
Calculated --> Rejected: invariant fails
Audited --> Published: version and timestamp recorded
Published --> Revised: approved correction
Revised --> FrozenInputs: rebuild from retained source state
How it works#
This page states the contract — how to call it correctly. The article explains the concept: why it works, and where it breaks.
References#
- S&P Dow Jones Indices Index Mathematics Methodology — S&P Dow Jones Indices
- S&P DJI Equity Indices Policies & Practices — S&P Dow Jones Indices
- FTSE Russell Capping Methodology — FTSE Russell, LSEG
- FTSE Russell Index Policy and Methodology Library — FTSE Russell, LSEG
- MSCI Global Investable Market Indexes Methodology Library — MSCI
- MSCI Minimum Volatility Indexes Methodology — MSCI
- S&P Risk Control 2.0 Indices Methodology — S&P Dow Jones Indices
- Principles for Financial Benchmarks — International Organization of Securities Commissions
- Regulation (EU) 2016/1011 — European Union
- Portfolio Selection — Harry Markowitz
- On the Properties of Equally-Weighted Risk Contributions Portfolios — Sébastien Maillard, Thierry Roncalli, and Jérôme Teïletche
- Fundamental Indexation — Robert Arnott, Jason Hsu, and Philip Moore
- FTSE Currency Hedging Methodology Overview — FTSE Russell, LSEG