Turnover Buffer Rule
Install and import#
npm install fintech-algorithmsimport { calculate } from "fintech-algorithms/index-and-benchmark-engineering/governance-and-maintenance/turnover-buffer-rule";Signature#
calculate(data)The buffer in isolation: a band around the cutoff inside which incumbents keep their place. Widening it cuts turnover and lets the membership drift further from the pure ranking — that trade-off is the whole design decision.
Parameters#
| Name | Type | Notes |
|---|---|---|
data | { candidates: Candidate[]; targetCount: number; buffer: number } | buffer is expressed in ranks or in weight, depending on the index's own rulebook. |
Returns#
{ selectedIds, additions, deletions, targetCount }
The membership after the buffer is applied, with the changes it permitted.
Errors#
- When buffer is negative — throws
Complexity: time O(n log n),
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#
{
"candidates": [
{
"id": "A",
"rank": 1,
"incumbent": true
},
{
"id": "B",
"rank": 2,
"incumbent": false
},
{
"id": "C",
"rank": 3,
"incumbent": true
}
],
"targetCount": 5,
"buffer": 1
}Call#
calculate(data)Returns#
object with 4 fields: selectedIds, additions, deletions, targetCount
{
"selectedIds": ["A", "B", "C", "E", "F"],
"additions": ["B"],
"deletions": [],
"targetCount": 5
}Diagrams#
Calculation flow#
Turnover Buffer Rule 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 Turnover Buffer Rule"]
E --> F["Recompute invariants"]
F --> G{"Checks pass?"}
G -->|No| D
G -->|Yes| H["Publish audited output"]
Turnover Buffer Rule 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