The process of evaluating a strategy, theory, or model by applying it to historical data.

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2answers
459 views

Machine Learning on matlab 2010

I am trying to develop a trading model. It uses certain technical and fundamental features and the model learns from the past. I have a 3-class output - bullish, neutral and bearish. On trying neural ...
3
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4answers
1k views

IB TWS & API, without IB account?

I'll be starting a MFE grad program in Fall, and some of the classes have a lab that use the IB TWS & API. I'd like to play around with it for fun this summer. Unfortunately, I don't have an IB ...
1
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0answers
248 views

Comparing Backtests of Value-at-Risk and Expected Shortfall

My goal is to test if ES (CVaR) empirically is a better risk measure than VaR for a set of given variables (assumed underlying distribution, confidence level, sample size) for different asset classes. ...
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1answer
430 views

backtesting with open, close, high and low

I am quite notice at the business of backtesting for an automated strategy. I was wondering, can I/should I use High and Low for this purpose? On one hand, the algorithm will see these prices, but on ...
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1answer
256 views

adjusted close prices on SP500

When I look at the adjusted close prices of SP500, for example, I notice that the numbers are always significantly below the actual closing. In the explanation of what adjusted prices are, one gets ...
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2answers
116 views

how to make a distribution model tolerable of trend?

I'm building an model on different loans' NPL rate. The problem is NPL rates are always affected by the market. When NPL rates move in trend, my model will fail the back-testing. Assuming $x(t)$ is a ...
4
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3answers
560 views

Backtesting - can you buy/sell at open and closing prices?

In backtesting (nasdaq stocks), I make the assumption that I have the ability buy/sell each day at the opening and closing prices. Is this realistic?
0
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1answer
89 views

How do I take an unbiased, sector neutral sample from a stock index?

I am looking to take a cross sector subset of a larger stock index universe. What steps to I take to assure that sector representation is as equal as possible to help smooth out my variance(while ...
4
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0answers
552 views

Testing Valuation, Size and Momentum (proprietary factors) from 1988-2013: No evidence of driving cross-sectional returns

I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...
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1answer
232 views

How to design back-testing (validation) for such modified Vasicek model?

Consider a classical Black Scholes model , $$\frac{dS}{S} = \mu dt + \sigma dW$$ , where $dW$ is a Brownian motion, that $W(t_1) - W(t_0) \sim N(0, t_1 - t_0)$. The back-testing strategy is ...
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2answers
523 views

How to get/estimate ask/bid price for backtesting for OHLC data? [closed]

As you know, most of the EOD data available have only OHLC price. I used to do back-testing using the Close price as both bid and ask. however, in real world, the bid and ask spread is huge and the ...
3
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3answers
319 views

How to most optimally perform currency conversions when backtesting on portfolio level?

I am currently expanding my own strategy profiling and testing platform which partly consists of a portfolio backtesting module. The backtest engine processes tick based data (quotes for currencies, ...
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2answers
1k views

backtesting options strategies in R

I would like to backtest an options strategy in R. I require the ability to delta hedge and rebalance to options in the portfolio at different frequencies (daily, monthly,etc.) What packages are the ...
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votes
1answer
399 views

How to test the efficiency of Exponential Moving Averages as a trading startegy? [closed]

I would like to know how I can test the efficiency of Exponential Moving Averages when it comes to forex trading. Can i have any papers that point to the efficiency of this strategy? Thank you. :)
4
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0answers
272 views

Quant/Stat Factor Performance Website/Distribution?

Does anyone know of a decent quant/stat factor website, distribution(public or private) or publication that tracks performance of "many" of traditional quant/stat factors? By that I mean would show ...
3
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2answers
569 views

Software for backtesting outside strategies (CSV transaction upload)

I've developed some software which generates sets of trades, and I'd like to backtest those trades. My software currently outputs a CSV file with details of each trade: ...
4
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2answers
259 views

How to reactivate a risk mangement rule in an automated process

If some conditions are met (stop loss, trailing stop, take profit...) we will close ours positions (sell/buy) to avoid having more loss or to ensure profit. In an automatic trading system, it is easy ...
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0answers
1k views

VaR model Unconditional Coverage Tests: Is this extension of Kupiec POF test correct?

Background: Kupiec P. in 1995, published paper "Techniques for Verifying the Accuracy of Risk Management Models" on Journal of Derivatives, v3, P73-84, it's a Unconditional Coverage Tests designe for ...
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1answer
197 views

backtesting a 5% quantile model of a discrete value random variable?

If a random variable is discrete, and we are interested in its quantile value, how to define a proper back testing procedure? For example, the underlying variable with a discrete value is $$ ...
5
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6answers
636 views

Encyclopedia of Statistical Tests

I am aware of: Encyclopedia of Chart Patterns, Encyclopedia of Technical Analysis. Question I'm wondering if there's something similar, but in the form of: "Encyclopedia of Statistical Backtesting ...
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1answer
1k views

What different methods of pairs selection exists? (For Pairs trading)

(I'm quite new to quant finance so I'm not sure if this is an eligible question.) I've decided I want to backtest pairs trading on the Nordic stockmarket. So I would guess there exists different ...
2
votes
2answers
1k views

Resequencing of MsgSeqNum in FIX 4.2

I am trying to achieve the following functionality using QuickFIX for FIX 4.2 Send a couple of orders and make sure they’re filled. Then disconnect. Change the incoming (from Broker) sequence number ...
2
votes
1answer
243 views

desk's performance

I need your point of view in evaluating the monthly performance of a desk. I have the daily credit risk capital requirement (A); the net banking income or GNP (B). What is the best measure of ...
4
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1answer
487 views

Bootstrapping first, then data mine?

I posted this on Cross Validated a month ago, but I didn't get any answers. Sorry for the second post! I'm wondering about the whole process of testing/data-mining for a strategy and THEN testing on ...
1
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1answer
396 views

Is making a bid/ask offer a good way to lower the spreads?

I have written an algorithmic trading program which relies heavily on low spreads in the 0.1-0.3 PIP region. I was now wondering if it would be a good idea to place bid/ask offers instead of limit ...
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3answers
3k views

Main backtesting & trading solutions: QuantFactory, Deltix, etc.

What are the most used/mature/promising commercial solutions today which handle backtesting/ automated trading needs? I'm talking about vertical product suites like QuantFactory or Deltix which ...
13
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3answers
902 views

How to account for transaction costs in a simulated market environment?

I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction ...
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0answers
178 views

Backtesting benchmark / control test design

I am designing a backtesting system to test an algorithm. I'd like to have a benchmark / control test results to compare to the results of a custom algorithm. A limited "set" of stocks is selected ...
5
votes
1answer
832 views

Statistical significance of trading systems that use indicators with long lookbacks

Let's say we have a trading system that trades daily, holding for one day, but uses an indicator that looks back over the last 5 years. A simple example could be the percent change in price of an ...
8
votes
3answers
2k views

What is an effective way of backtesting VWAP execution?

From Optimal Trading Strategies : There are two main reasons why traders execute orders using a VWAP trading strategy. First, a VWAP strategy is the trading strategy that minimizes market ...
3
votes
2answers
2k views

How to account for bid/ask spread when backtesting?

I'm backtesting an algorithm for trading nasdaq stocks, and would like to take into account the spread. I am using historical data from yahoo, which contains: open, high, low, close, volume, adj. ...
2
votes
1answer
502 views

What are the advantages of knowing the bid and ask over the best bid and ask?

I am importing historical intraday tick data from Bloomberg and I noticed the Bloomberg API allows users to import best bid, best ask, bid, and ask prices If I am backtesting a trading strategy, what ...
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0answers
321 views

VaR backtesting with overlapping time intervals

Of course the issue here is dependence: can it be removed or accounted for (in independence tests too, which of course would be troublesome)? There's a lot of literature on regression in this setting, ...
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4answers
2k views

How should I include the bid-ask spread as a transaction cost in a backtest?

I have two backtesting algorithms: One that uses bid and ask prices for signal generation. For example: Buy when $ask < threshold_1 $ and sell when $bid > threshold_2$. Bid and ask prices are ...
2
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1answer
109 views

Aftcast Generation

Aftcast is a way of simulating equity curves for different start years, usually from a large sample data ~100 years. Its kind of like start date sensitivity testing but in my case, I incorporated ...
0
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1answer
170 views

How far back is normal to backtest an ATS ? [duplicate]

Possible Duplicate: How much data is needed to validate a short-horizon trading strategy? How far back do people usually backtest trading systems? months? years?
9
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1answer
623 views

What tools and libraries may be used to model limit/stop systematic trading?

A lot of the tools/libraries out there seem to focus on close to close time series analysis. This is all fine but I typically do not trade close to close, I will use limit or stop orders that may or ...
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0answers
40 views

Inferring Returns From Minimal Data Points [duplicate]

Possible Duplicate: How much data is needed to validate a short-horizon trading strategy? Suppose I have daily returns for a trading strategy against one month of data. Before starting ...
3
votes
1answer
353 views

How do I backfill the price of bonds for backtesting?

I need to backfill the price of bonds for testing a startegy. The method employed is: Regressing the YTM of the bond against a benchmark. Using the regression estimates to calculate the YTM for the ...
3
votes
1answer
984 views

What latency should I use for backtesting a high-frequency strategy?

We're developing an HFT strategy for highly liquid futures traded at Eurex. We are planning to colocate our server and to use data feed of QuantHouse and execution API of ObjectTrading. Backtesting is ...
3
votes
1answer
380 views

Cross Bid and Ask prices for Forex trading

I am using ITCH protocol to get the Market Data information for Forex and trying to implement LOB on it and what i have noticed is that Bid and Ask prices are crossing very often. Should that be ...
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2answers
501 views

One bar look-ahead backtesting

Suppose you backtest the EUR/USD (or GBP/USD) forex pair with this system on the 1min timeframe: 1) Enter the market at any time n: go long if the "future" bar n+1 has a higher close as the close ...
3
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0answers
120 views

Are there canonical test cases for testing of pricing engines

Short intro: We are developing pricing engines for the calculation of market risk in a Solvency II solution, including bonds, callable bonds, cds, options, futures and so on. Are there any canonical ...
10
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3answers
864 views

Literature on generating synthetic time series for testing

I have some market data (daily time series) for bond prices and CDS indices and I would like to generate synthetic versions of these which are statistically "similar" for testing trading strategies. ...
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5answers
2k views

What are the advantages of switching platforms/languages between strategy development and implementation?

I am interested in coding a medium frequency (trading over minutes to hours, holding for days to weeks) quantitative trading strategy and trading it with Interactive Brokers. I have seen many people ...
8
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1answer
457 views

Any research paper on stop loss?

Has there been any rigorous study on stop loss ? When to apply it? Has it been shown to work through proper statistical backtests? I am interested in Equities, preferably European stocks.
8
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2answers
1k views

How to vet an intraday strategy

I am working on an intraday strategy using 5/10 minute bars. I am getting a decent return and sharpe on the strategy. But on close examination I see that I am making about 1 cent per trade (I haven't ...
3
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2answers
284 views

Which indices to use for an equity vs. fixed-income portfolio simulation?

I want to backtest several basic optimization methods (e.g. MVO, "most-diversified portfolio"), and I want to do this on a basket of different asset indexes. To start with, I want to simulate a 60/40 ...
6
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4answers
1k views

How to properly evaluate backtest returns?

Do you evaluate a strategy in a backtest based on the cumulative returns generated by the strategy (i.e. looking at the cumulative returns of the trades that occur) or do you start with a certain ...
4
votes
3answers
2k views

How to compute the alpha decay of a strategy?

How can one compute the alpha decay of a systematic trading strategy?