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Capped Free-Float Market-Cap Index

Install and import#

bash
npm install fintech-algorithms
ts
import { calculate } from "fintech-algorithms/index-and-benchmark-engineering/weighting-and-capping/capped-free-float-market-cap-index";

Signature#

calculate(data)

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.

Parameters#

NameTypeNotes
data{ ids: string[]; marketValues: number[]; cap: number }cap is the maximum weight any one constituent may hold, as a fraction. The routine iterates until every weight is compliant.

Returns#

{ ids, weights, cap, iterations, maxWeight, weightSum }

Compliant weights plus iterations and maxWeight, so the redistribution can be checked rather than assumed to have converged.

Errors#

  • When cap is not between 0 and 1 — throws
  • When the cap is mathematically unsatisfiable — cap × count < 1 — throws

Complexity: time O(n × iterations), 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
{
  "ids": ["A", "B", "C", "D", "E"],
  "marketValues": [48, 24, 14, 9, 5],
  "cap": 0.3
}

Call#

calculate(data)

Returns#

object with 6 fields: ids, weights, cap, iterations, maxWeight, weightSum

{
  "ids": ["A", "B", "C", "D", "E"],
  "weights": [0.3, 0.3, 0.2, 0.128571, 0.071429],
  "cap": 0.3,
  "iterations": 3,
  "maxWeight": 0.3,
  "weightSum": 1
}

Diagrams#

Capped Free-Float Market-Cap Index — article hero
Capped Free-Float Market-Cap Index — failure guard
Capped Free-Float Market-Cap Index — worked example

Calculation flow#

Capped Free-Float Market-Cap 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 Capped Free-Float Market-Cap Index"]
    E --> F["Recompute invariants"]
    F --> G{"Checks pass?"}
    G -->|No| D
    G -->|Yes| H["Publish audited output"]
Capped Free-Float Market-Cap 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#

The rest of the Weighting and Capping family#