This is for planning and risk management. I am stuck on the following thoughts -
- Back-test the trading strategy for a period similar to the one you expect and then project.
- Do the above using empirical distribution of the back-test period, similar to FHS.
- For portfolio, GARCH estimate variance into the future time steps, run MC using empirical distribution. This is like to except time varying volatility, also, you are doing it at each asset level. May use copula and draw correlated noise.
- Assume regardless of the market condition that trader or manager will find suitable trades and use his Sharpe ratio or %gain. Here draw-down will be difficult to handle. May be assume he will stick within his risk limits.
Please provide references with your answers.