Index calculation...free float?

I was asked about our calculation methid and it is a pleasure to give you further information.

Normally, in RL, indexes are calculated after Laspeyres and under consideration of free floats.

Laspeyres is calculated from a set of fixed quantities of a finite list of goods. We are assumed to know the prices in two different periods. Let the price index be one in the first period, which is then the base period. Then the value of the index in the second period is equal to this ratio: the total price of the basket of goods in period two divided by the total price of exactly the same basket in period one (after www.about.com)

Free float simply stipulates that not all of the shares are available for trading and that only those should be considered for the calculation which are available. The index is then weighted by the free float. Normally a free float value around 20% is used as a minimum criteria to exclude shares and there is also a minimal criteria for market capitalization.

Well, we thought about this and that is why we came up with a different calculation method.

Free Float: A joke in WSE. Companies like RDX, ACE, AMS and a few others own more than 95% of their own shares (and alter egos possessions or those of the board are even not considered). If we would apply a free float there would be no way to get authentic information and probably only a few companies could be considered.

Market capitalization: another problem as the differences between small and large companies are important. We could put a limit by 5 millions $L or similar but again, together with free float nothing practible would come out.

Thus!!!!!!

LWI's goal: We want to aim to go towards a real index but think that is too premature as the market is not yet developed enough. For the time being we think that is better to calculate a performance index as we do in LWI.

LWI rules:

1) Free float, market capitalization, dividends, business plan are considered to judge whether a title get a place in the index or not

2) an audit over each company in the index takes place each month. The first time when the IPO is sold off. After that a case report form is sent monthly to each company to ask about free floats and others figures in their company. This information is used together with 1) to evaluate the status of the companies

3) We give each share the same weight in the index. We think that this situation reflects the market of WSE much better in the time being. The majority of larger companies on WSE wouldn't fulfill free float conditions anyway. Our method honors on the other hand the performance increase of the innovative smaller companies

4) Paid out dividends are considered in the calculation

5) The calculation then follows Laspeyres

Hope this helps to clarify...derivatives are a bit special but great if you take time to understand them...

By the way, LWI rose to 1078.13 .

And of course I will take the time to give you further information if you like, just IM me.

Greetz
Casper Trebuchet