Percentage-Decrement Index

Install and import#

bash

npm install fintech-algorithms

import { calculate } from "fintech-algorithms/index-and-benchmark-engineering/strategy-indices/percentage-decrement-index";

Signature#

calculate(data)

The same idea as a fixed decrement, but proportional to the level. The two diverge as the index moves: a points decrement bites harder when the level is low, a percentage one scales with it.

Parameters#

Name	Type	Notes
`data`	`{ underlyingLevels: number[]; annualDecrementRate: number; dayCount: number; baseLevel: number }`	`annualDecrementRate` is a fraction per year, pro-rated by `dayCount`. `baseLevel` is the index value at the start of the series; it scales the level but never the returns.

Returns#

{ dailyDeductions, levels, endingLevel }

The proportional deduction per day and the level series.

Errors#

When dayCount is not positive, or the rate is negative — throws

Complexity: time O(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#

data

{
  "underlyingLevels": [100, 101, 100.5, 102, 103, 102.6],
  "annualDecrementRate": 0.05,
  "dayCount": 360,
  "baseLevel": 100
}

Call#

calculate(data)

Returns#

object with 3 fields: dailyDeductions, levels, endingLevel

{
  "dailyDeductions": [0.000139, 0.000139, 0.000139, 0.000139, 0.000139, 0.000139],
  "levels": [100, 100.986111, 100.472154, 101.957784, 102.943209, 102.529132],
  "endingLevel": 103.913925
}

Diagrams#

Calculation flow#

Percentage-Decrement 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 Percentage-Decrement Index"]
    E --> F["Recompute invariants"]
    F --> G{"Checks pass?"}
    G -->|No| D
    G -->|Yes| H["Publish audited output"]

Percentage-Decrement 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.

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

Percentage-Decrement Index

Install and import#

Signature#

Parameters#

Returns#

Errors#

Worked example#

Input#

Call#

Returns#

Diagrams#

Calculation flow#

How it works#

References#

The rest of the Strategy Indices family#