Page Comparison

...

You can set constraints at more than one level of the structure. For example, you can constrain a segment to a particular weight and a security within a different segment to a particular weight. The software does not support constraining a segment and a security within that segment.

Anchor
_Toc347318590 _Toc347318590

Anchor
_Toc12285187 _Toc12285187

Calculate Weights and Returns

The methodology for calculating constrained benchmarks follows:

1. Calculate the Total Constrained Weight = (Sum of all the constrained weights).
   Constrained weights = (the newly assigned weight for the segment or security – the vendor-supplied weight for the segment or security).
   Sum the constrained weights from Step 1.
2. Calculate the Sum of the Total Original Source Weight at all constrained levels.
   Sum the original source weight before the constraints.
3. Calculate the New Weights for the constrained securities and segments and the securities and segments below the constrained level using:
   Weight Change = (Source weight for segment or security * That Segment or Security's Constrained Weight) / (That Segment or Security's Total Original Source Weight)
   New Weight = Weight Change + Original Source Weight
4. Calculate the New Weights for all remaining (nonconstrained) levels.
   Weight Change = –1*((Source weight for segment or security * Total Constrained Weight (Step  1b)) / (1 – (Sum of the Total Original Source Weight at all Constrained Levels (Step 2))
   New Weight = Weight Change + Original Source Weight
5. Copy all the security and segment returns, except those for the constrained level and above, from the source to the target (custom benchmark).
6. Calculate the New Returns for the segments above the constrained segment.
   Reproportion the New Weights (calculated in Steps 3 and 4) to 100 percent for the target benchmark.
   Calculate the New Returns: Sum (Return * New Weight) of all the underlying segments or securities.

Anchor
_Toc347318591 _Toc347318591

Anchor
_Toc12285188 _Toc12285188

Constrained Benchmark Example

For the purposes of example, assume the source index (vendor-supplied index) and constraints listed in the following table.

...