Weighting and Capping

8 algorithms in Index and Benchmark Engineering · 8 with asserted arithmetic.

In this family#

1. Price-Weighted Index verified

   The Dow construction: sum the prices, divide by a divisor. Weight follows share *price*, not company size — a $500 stock moves it more than a $50 one ten times the size, which is why it tells a different story from the S&P.

   calculate(data)
2. Total-Market-Cap Index verified

   Weight by full market capitalisation. The textbook construction, and the starting point every float and capping rule modifies.

   calculate(data)
3. Free-Float Market-Cap Index verified

   Weight by the shares that can actually be bought. Excluding strategic, government and insider holdings is what makes an index replicable — a fund cannot buy shares that are not for sale.

   calculate(data)
4. Capped Free-Float Market-Cap Index verified

   Float weighting with a ceiling on any single constituent. Regulation and mandate limits require it, and the redistribution is subtler than it looks: capping one name lifts the others, which can push a second name over the cap.

   calculate(data)
5. Modified Market-Cap Index verified

   Applies an exponent to market value before weighting, compressing the gap between the largest and smallest members. An exponent of 1 is plain cap weighting and 0 is equal weighting; between them is a continuous dial.

   calculate(data)
6. Equal-Weight Index verified

   Every constituent counts the same: each eligible name receives the target weight 1/N at the rebalance date. Realised weights then drift with relative prices until the next scheduled rebalance, and restoring the equal target is what creates turnover. The construction does not imply continuous rebalancing; the rebalance calendar is a separate methodology choice that this function does not model.

   calculate(data)
7. Iterative Cap Redistribution verified

   The redistribution engine behind every capped index. Cap the offenders, spread the excess across the rest in proportion, repeat until nothing breaches — the loop is necessary because each pass can create new breaches.

   calculate(data)
8. Group-Level Capping verified

   Caps at two levels at once: each constituent, and each group it belongs to. This is the UCITS 5/10/40 shape, and the two constraints interact — satisfying one can break the other, so both are enforced together.

   calculate(data)

What they share#

Every topic here is a record-transform, so once you have called one the rest follow the same shape. Import paths differ only in the final segment:

import { calculate } from "fintech-algorithms/index-and-benchmark-engineering/weighting-and-capping/price-weighted-index";
import { calculate } from "fintech-algorithms/index-and-benchmark-engineering/weighting-and-capping/total-market-cap-index";

Read them in the order above — the sequence is pedagogical, not alphabetical.

Where this sits#

Index and Benchmark Engineering collects 40 algorithms across 6 families. For the concept behind this family rather than the call signatures, see the concept guides.