Base-Date/Base-Value Initialization

Install and import#

npm install fintech-algorithms

import { calculate } from "fintech-algorithms/index-and-benchmark-engineering/index-initialization-and-continuity/base-date-base-value-initialization";

Signature#

calculate(data)

Sets an index running: pick a base date and a base level, and the divisor follows from the market value on that date. Everything else in index construction is maintenance of this one relationship.

Parameters#

Returns#

{ marketValue, divisor, indexLevel }

The base market value, the divisor derived from it, and the level — which by construction equals baseLevel on day one.

Errors#

• When baseLevel is not positive or the market value is zero — throws

Complexity: time O(n), space O(1).

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#

{
  "constituents": [
    {
      "id": "ALFA",
      "price": 50,
      "shares": 1000,
      "floatFactor": 0.8,
      "fx": 1
    },
    {
      "id": "BETA",
      "price": 80,
      "shares": 600,
      "floatFactor": 0.75,
      "fx": 1
    },
    {
      "id": "GAMMA",
      "price": 40,
      "shares": 1200,
      "floatFactor": 0.9,
      "fx": 1
    }
  ],
  "baseLevel": 1000,
  "baseDate": "2026-01-02"
}

Call#

calculate(data)

Returns#

object with 3 fields: marketValue, divisor, indexLevel

{
  "marketValue": 119200,
  "divisor": 119.2,
  "indexLevel": 1000
}

Diagrams#

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 Base-Date/Base-Value Initialization"]
    E --> F["Recompute invariants"]
    F --> G{"Checks pass?"}
    G -->|No| D
    G -->|Yes| H["Publish audited output"]

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.

Read the article →

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

The rest of the Index Initialization and Continuity family#

• Index Divisor InitializationThe divisor itself: market value divided by the target level.
• Divisor Continuity AdjustmentRescales the divisor when market value changes for a non-market reason — a share issue, a member swap — so the level does not j…
• Corporate-Action Divisor BridgeApplies a corporate action to an index by routing its non-market value change through the divisor.
• Intraday Index-Level CalculationRecomputes the level from a live price snapshot using fixed index shares and float factors.