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

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4
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152 views

What is the most convenient data structure for backtesting a model of futures options prices?

I have an empirical model for the dynamics of futures prices in a particular market that I have implemented using a long series of the front five contracts. (I account for the roll in my model.) I ...
4
votes
0answers
539 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 ...
4
votes
0answers
269 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
votes
2answers
565 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: ...
3
votes
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 ...
3
votes
1answer
288 views

How to find optimal look back in quant trading models

I'm in the process of building a quantitative trading model, I want to improve on the way in which I decide upon a look back length for the indicators. I understand the different pros/cons for very ...
3
votes
2answers
282 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 ...
3
votes
3answers
314 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, ...
3
votes
1answer
589 views

Learn backtesting using MATLAB

What are some good ressources (books, articles, ...) to learn backtesting of investment strategies using MATLAB ? It can be strategies related to fixed-income, equities, derivatives, ... whatever. ...
3
votes
1answer
380 views

analyze strategy performance with given matrix of weights/time and weekly returns in R

I have a matrix of 259 weekly returns, 50 assets and a portfolio composition for each of the 259 weeks. I would like to test the performance of the portfolio during 52 weeks, rebalancing every 12 ...
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. ...
3
votes
1answer
1k views

How do I backtest a convertible bond arbitrage strategy in R/Matlab?

Since no one was able to answer my previous question, I am going to try to backtest a modern convertible bond arbitrage strategy myself (perhaps I'll report the results back here, if you're lucky :)). ...
3
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1answer
95 views

Question about historical volatility ranking

I have seen this strategy example, which uses garch in a regime switching context: https://systematicinvestor.wordpress.com/2012/01/06/trading-using-garch-volatility-forecast/ The author classifies ...
3
votes
1answer
90 views

How to compute daily compounded backtest returns closer to real-world results?

I often run quick tests of trading strategies in my analytics suites by: multiplying a vector of signal (lagged, {-1,0,1}) with a time series of daily percentage returns doing a cumulative product ...
3
votes
1answer
229 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 ...
3
votes
1answer
332 views

How do you estimate the capacity of a strategy from historical data?

What are some good ways to estimate the capacity of a strategy from historical data (including full market depth)? Obviously, a naive approach is that you want the strategy's returns to exceed its ...
3
votes
1answer
959 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
378 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 ...
3
votes
1answer
63 views

Methodology for handling short american options in a back test

Given that an American option can be exercised at any time, how does one handle algorithmically shorting an American option in a back test? I am not sure what the best practice is to simulate the ...
3
votes
1answer
165 views

Backtesting on historical option data

I have downloaded some daily historical option data for a timespan of 10 years and want to perform trading backtests with them. Data are European index options, on ODAX. My question is about realistic ...
3
votes
1answer
128 views

Overlapping Value-at-Risk Backtest Data an Issue?

My understanding of VaR model back testing is thus: ~~ t: Calculate daily VaR using look back data over n past days t+1: Compare daily return against VaR, record breach if one occurred, repeat ...
3
votes
1answer
348 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
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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 ...
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
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 ...
2
votes
1answer
495 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 ...
2
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2answers
277 views

Backtesting Period

Views on timeframes for backtesting vary considerably. Curious on what timeframe/trade size leads to a statistically significant result. For example, what backtest period is reasonable for a system ...
2
votes
2answers
253 views

How to select optimal betting strategy from backtest?

I have written a model for predicting the winner of UFC fights. My model calculates the probability of each fighter to win a given match. I have back tested the model and found it to be very ...
2
votes
1answer
571 views

Backtesting with fundamentals

Recently I've read some books about quantative approach to fundamental investing: - What works on Wall Street - James O'Shaughnessy - Quantitative Value - Wesley Gray, Tobias Carlisle - Quantitative ...
2
votes
1answer
108 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 ...
2
votes
1answer
196 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 $$ ...
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 ...
2
votes
0answers
32 views

How to optimize return in a moving average crossover algorithm

Moving average crossover strategy is a widely used strategy in algo trading. Is there a way to optimize return in a moving average crossover stratergy. I have used this site to backtest MA crossover ...
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3answers
488 views

Handling Missing values in stocks returns when estimating the co variance matrix

What is the best way to handle missing values when stocks did not exist for the entire historical period?.
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1answer
60 views

Daily or weekly data?

I am trying to test a strategy but do not know if I should use daily or weekly data? I have tried researching this & have found that daily data will bring " too much " noise compared to lower ...
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vote
1answer
395 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 ...
1
vote
2answers
495 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 ...
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1answer
28 views

importing columns of returns data into python from excel/csv [closed]

I'm fairly new to the quant finance space, and I was hoping to get some guidance. Say I have a csv/excel file with columns of daily returns data for various asset classes or securities (one column per ...
1
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1answer
60 views

Limits on Short selling

When back testing an algorithm that relies upon short selling certain stocks, how to limit the short selling so that the back-test results still remain reliable? What kind of controls are generally ...
1
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1answer
94 views

Simulating Stock's close, high and low prices

I am testing a model in which I need to simulate closing, high and low prices (i.e. 3 dimensions of prices) of any given stock. Using the simple Geometric Brownion Motion equation I can easily ...
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1answer
87 views

Calculation of Returns and Risk Metrics for L/S Portfolio

I am trying to build a test for a long/short portfolio. I am aiming for market neutral and have put together a long portfolio as well as a short portfolio (see below). However, I am not sure if I am ...
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1answer
234 views

Analog - Pattern Recognition model using KNN

I'm building a pattern recognition model for my master thesis. The idea is to build a framework with some Macro variables (long/short term rates; rates differential; equity; fx; vix) in order to find ...
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vote
1answer
407 views

How to fully replicate ADX + DI Indicators in Excel?

For black box testing, I was hoping that I could replicate the ADX + DI+ and DI- indicators that are provided in trading platforms such as ThinkOrSwim, ScottradeElite etc. However, I noticed that ...
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2answers
465 views

Backtesting with Simulated Historical Data?

The trading strategies that are going to backtest well are the ones that pick the winners from the past. For example, if a trading strategy simply bought apple stock it would backtest extremely well. ...
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2answers
453 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 ...
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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 ...
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0answers
92 views

Are there any software libraries for backtesting FX algorithms against tick data?

I've read question, however it doesn't appear as if any of those libraries work for FX data. A Google search for python forex backtesting turns up this project, ...
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0answers
52 views

How to compare market values with model values after calibration?

After calibration the G2++ model for interest (with swaption volatilities), I want to statistically test the quality of the calibration by comparing market to model values. What is the best way to ...
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0answers
63 views

Adjusting for your own orders in future backtests

I was asked this question in an interview and despite thinking about it for a while, I haven't been able to come up with a good answer. Suppose you have a strategy you are running where at certain ...
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1answer
169 views

Plot Evolution of portfolio weights over time in R [closed]

Is there any function for plotting the evolution of portfolio weights over time in r?. I have a matrix of portfolio weights from an equal weighting strategy at rebalancing times and want to plot ...