Definitions
In plain terms
It combines required weight changes with security-level cost estimates and may include turnover, spread, impact, taxes, and portfolio size.
Technical
The estimator defines pre and post holdings, valuation time, trade direction and notional, cost curves, liquidity inputs, crossing, cash, corporate actions, fees, FX, and uncertainty.
Scope
It is an estimate, not a guaranteed execution bill or the index's published return.
Formula
Cost = sum(abs(delta notional_i) * unit cost_i)Cost=\sum_i|\Delta N_i|c_i| Symbol | Meaning | Unit |
|---|---|---|
delta notional_i | required signed trade notional for instrument i | currency |
unit cost_i | estimated cost per unit notional | currency per currency traded |
Output unit: currency
Examples
- A governed methodology records index replication cost with its source, cutoff, units, parameters, and effective version.
Common misconceptions
- Index Replication Cost does not have one universal implementation without the declared methodology, data basis, and constraints.
Concept relationships
Where this concept is used
Evidence and governance
- FTSE Russell Index Policy and Methodology Library FTSE Russell, London Stock Exchange Group · first party methodology
Supports: preferred label, short definition, technical definition, formula
Limits: The library links multiple documents with separate versions and applicability; the effective document must be identified.
- Fintech Builder Glossary Definition Contract The Fintech Builder · internal governed contract
Supports: variant distinction
Limits: Defines governed platform behavior rather than claiming these policies are universally prescribed by external McClellan methodology.
- Reviewed by
- fintech-builder-batch-004
- Last reviewed
- 2026-07-27
- Next review
- 2027-07-27
- Record status
- evidence reviewed
This record is evidence-reviewed and readable, but not yet promoted to published — it is served noindex,follow and excluded from the sitemap.