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Modified Market-Cap Index

Install and import#

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

Signature#

calculate(data)

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.

Parameters#

NameTypeNotes
data{ ids: string[]; marketValues: number[]; exponent: number }exponent below 1 compresses the distribution; above 1 concentrates it further.

Returns#

{ ids, transformedValues, weights, exponent }

The transformed values and resulting weights.

Errors#

  • When a market value 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
{
  "ids": ["A", "B", "C", "D"],
  "marketValues": [64, 25, 9, 4],
  "exponent": 0.5
}

Call#

calculate(data)

Returns#

object with 4 fields: ids, transformedValues, weights, exponent

{
  "ids": ["A", "B", "C", "D"],
  "transformedValues": [8, 5, 3, 2],
  "weights": [0.444444, 0.277778, 0.166667, 0.111111],
  "exponent": 0.5
}

Diagrams#

Modified Market-Cap Index — article hero
Modified Market-Cap Index — failure guard
Modified Market-Cap Index — worked example

Calculation flow#

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