Creation and using indices on financial markets

Nowadays, when financial analysts work with huge amounts of data across sectors of the economy, the use and importance of financial indices is growing. These indices are capable of aggregation of large amounts of data needed for analysis to make a basic overview of how these variables behave as a whole. That is why importance of indices that are capable of describing the behavior of a group of economic variables as a whole is growing across sectors of economy. This thesis focuses on description of creation and use of these indices on financial markets. It describes methodology of creating different types of indices and analyzes situations when these methods are appropriate to use. Furthermore, these indices are often analyzed from the perspective of their predictive ability. Many indices can be used as indicators to predict financial markets developments and developments in real economy (for example Purchasing Managers´ Indices etc.). In the last part of this thesis, there is explained the process of creating financial derivatives for which are indices used as so-called underlying value and practical purposes for which are these derivatives useful.