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Quantitative Finance · Glossary

What is Index divisor?

Definition 8.15 Markets I: The Ecosystem and Exchange-Traded Markets · Chapter 8 — Shares, Corporate Actions and Indices

A capitalisation-weighted index with constituents ii of price pip_i, shares outstanding sis_i and float factor ϕi∈[0,1]\phi_i \in [0,1] has level

I=1Δ∑ipi si ϕi,I = \frac{1}{\Delta}\sum_i p_i\,s_i\,\phi_i ,

where the index divisor Δ\Delta is chosen at inception to give a round starting level and is thereafter changed only to offset changes in the numerator that are not price moves.

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