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Price-Weighted Index

Install and import#

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

Signature#

calculate(data)

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.

Parameters#

NameTypeNotes
data{ prices: number[]; divisor: number }Constituent prices and the current divisor.

Returns#

{ priceSum, divisor, indexLevel, weights }

The level plus the implied weights, which make the price-not-size effect visible.

Errors#

  • When the divisor is not positive — 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
{
  "prices": [50, 75, 25, 100],
  "divisor": 0.25
}

Call#

calculate(data)

Returns#

object with 4 fields: priceSum, divisor, indexLevel, weights

{
  "priceSum": 250,
  "divisor": 0.25,
  "indexLevel": 1000,
  "weights": [0.2, 0.3, 0.1, 0.4]
}

Diagrams#

Price-Weighted Index — article hero
Price-Weighted Index — failure guard
Price-Weighted Index — worked example

Calculation flow#

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