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Jul
24
comment How to most optimally perform currency conversions when backtesting on portfolio level?
For order sizing purposes even a variation of 5% or so has an almost immaterial effect (for example, it makes almost no difference whether I trade 1,000,000 EUR notional based on an outdated conversion factor or 1,050,000 EUR, that would have been correct because the current conversion factor changed by 5% since the update in the system).
Jul
24
comment How to most optimally perform currency conversions when backtesting on portfolio level?
Thanks for your idea and suggestion, it is much appreciated. However, I was purely talking in regards to historical testing and my point was that I try to avoid having to check all fx conversion factors to a certain base currency because it would unnecessarily slow down the profiling process. I think what chrisaycock suggested comes closest to what I will implement because it only "cheats" on unrealized pnl until the conversion rate is updated again a day later or when the pnl is realized, whichever comes first.
Jul
24
comment Black--Scholes hedging argument
fair point, thanks for clarifying. Your answer probably is closer to what the asker is looking for, though I explained things more from a risk neutral pricing rather than PDE approach because I believe it is easier this way to appreciate the importance and functioning of the hedge portfolio.
Jul
24
comment How to calculate return rates with negative prices?
@airguru, I understand all that. But negative prices make no sense. Why cant power suppliers not simply pump surplus into the grid which they in fact do all the time as far as I heard. They constantly generate an oversupply and as far as I heard they would never pay anyone for such oversupply. In fact they already incur the cost without being able to sell it. Could you please think of an example where power prices are clearly demonstratively negative? I am honestly curious.
Jul
24
comment How to calculate return rates with negative prices?
I do not agree with your rational behind your argument nor have I ever heard of suppliers paying to have electricity consumed. At worst they could give it away for free. While I have never traded power there is no apparent logical reason why power prices could ever be negative while there are many good reasons why interest rates may be negative. Have you checked that your chart observation is not just a data error?
Jul
21
comment How to calculate return rates with negative prices?
Exactly, I second what Christian said. It seems you try to force data into distributional nomenclature just to be able to apply an option pricing model of your own choosing rather than the other way around. But you still have not explained why a producer would pay money to deliver electricity rather than just "dump it" and why consumers would receive money for power consumption. I am afraid there is a misunderstanding on your end going on.
Jul
21
comment How to calculate return rates with negative prices?
You mean you are paid to consume electricity? Then we must be dealing with markets where the laws of supply and demand do not apply and hence conventional methods and models should not be applied either. But out of curiosity can you please share with us where that is the case and why?
Jul
21
comment How to calculate return rates with negative prices?
There is no negative prices even in electricity options. But aside that I second what Hebe suggested. Use simple returns rather than log returns.
Jul
20
comment Most successful investors using academic-based framework?
Maybe my stats is way off base here but a strategy with such low draw downs and 5+ Sharpe ratios does not return less than at least 50%, gross or net, regardless of trading frequency, strategy approach unless we are talking some odd boundary cases ( funny return covariances on 5 or 6 trades a year which I assume is not the case here). Just saying you may want to double check those CAGRs.
Jul
20
comment Most successful investors using academic-based framework?
yes but they would have way higher than 20% annual returns
Jul
20
comment How to most optimally perform currency conversions when backtesting on portfolio level?
Sorry maybe the above was confusing. I omitted to state that my profiling and testing workflow is completely identical with the live environment except for the data source and execution.
Jul
20
comment Most successful investors using academic-based framework?
20% CAGRs and SRatios in the 5 region does not compute. Strategies with 5 Sharpe's and around 20% returns imply close to zero % drawdowns and hence means the strategies/managers square each profitable trade as prematurely as they cut losses early on. A very rare strategy to spot such return/SR profile.
Jul
20
comment How to most optimally perform currency conversions when backtesting on portfolio level?
Thanks for your input. I think about doing it possibly the same way. For PNL purposes it is just the reporting that is off until the numbers are marked to market the next day. Once PNL is "repatriated" through actual fx conversions everything should work out fine. I was just wondering what others think of potentially trading 2%-3% smaller or larger positions due to outdated fx notional conversions.
Jul
20
comment How to most optimally perform currency conversions when backtesting on portfolio level?
@kristine, I see your concern but this is closely related to currency fluctuations and their impact on computations such as pnl, capital utilization, notional exposure,... and hence I decided to pose the question here rather than in a forum of users without much expertise on the finance/trading side. Care to add your take to this problem? I am curious to learn how you would handle it. Thanks
Jul
20
comment How to most optimally perform currency conversions when backtesting on portfolio level?
@chrisaycock, I am just not sure what the best approach to the frequency of such conversion factor updates is. How do you handle issues surrounding non base currency conversions? Or are you only exposed to USD denominated assets?
Jul
20
comment How to most optimally perform currency conversions when backtesting on portfolio level?
@chrisaycock, I store tick data in binary flat files but wrote a very versatile query engine to access tick data by start and end time stamp extremely quickly regardless of file size. But the issue I stated in my question is not so much about how the historical data is store but rather whether or not to have to update fx conversion factors as frequently as with each incoming data point. When I load batches of tick data into the engine, it loads batches of the same time snap shots across whatever assets the engine is subscribed to. I could do the same with the fx pairs.
Jul
19
comment How does out-of-sample option pricing work in practice?
What do you mean exactly with in and out of sample? For most all vanilla options the market accepted models contain stochastic processes that are martingales and hence to value an option at time t you only need the inputs to the option pricing model at time t. If you look to forecast an option price at t+1 then you also need to predict the inputs to such model for t+1.
Jul
19
comment How to look for fractals/harmonics patterns in time series?
I only try to answer questions or reference papers I myself have worked on or believe I understand. But I suffer from an overoptimistic nature ;-)
Jul
19
comment How to look for fractals/harmonics patterns in time series?
Depending on what you look to use such system for one of my previous answers may be of help: quant.stackexchange.com/questions/8242/multi-fractals-models
Jul
19
comment How to look for fractals/harmonics patterns in time series?
Asking for book recommendations is of course fine, asking others to pretty much guide you through the construction, well, pretty much delivering you the setup on a silver platter is maybe asking for a little too much. Maybe that is not your intention, it just comes across to me as such. Maybe you could rephrase the question?