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Jul
30
comment How to most optimally perform currency conversions when backtesting on portfolio level?
yes that is how I have done it in the end. Run-time wise it would probably have been the cleanest way because I could have read such time series just in an identical way as the other assets' time series. However, in order to realize a bit more of some sort of "separation of concerns" I stored all dollar crosses (assuming USD is base currency) in a separate in-memory database. (very small footprint as I only use 1 update per day).
Jul
30
comment options pricing using vwap
@BrianB, thanks for mentioning that. Do you have couple products in mind where that was the case? I have traded JGB futures options in the past and felt liquidity was well reflected in the iVol spreads at most times.
Jul
28
comment how to make a distribution model tolerable of trend?
You could research "regime changes" and the handling of those.
Jul
28
comment how to make a distribution model tolerable of trend?
You are basically asking people to design a strategy for you, hardly the purpose of this forum. If your strategy fails when the underlying driver is not mean-reverting then you need to work on a change in strategy approach if you want it to handle environments of high auto-correlation.
Jul
26
comment Do some option pricing models allow for misspecification and what does it mean?
You are saying that "Diverse option pricing models are reported to be misspecified in various studies." Then you ask what it means...I am confused. And I feel you need to supply a lot more information to have readers understand what is under discussion: How do the authors "estimate" the implied volatilities (from what data/model), re-estimate by changing what, what are those "6 sets of option prices". I am afraid the reader cannot extrapolate from the little information in the quote provided.
Jul
26
comment How to most optimally perform currency conversions when backtesting on portfolio level?
Thanks for the comments. I would be more careful if I had to deal with inaccurate pricing data of the instrument itself or estimates thereof (I do take exact pricing into account, so no issue there). However, this question only deals with currency conversions to trade/profile non base currency denominated assets. So, after thinking of it I am pretty sure your advice is sufficient, thanks.
Jul
26
comment How to most optimally perform currency conversions when backtesting on portfolio level?
@chrisaycock, chrisaycock if you like to write up a one-two liner as answer then I am happy to accept it as answer.
Jul
26
comment How to most optimally perform currency conversions when backtesting on portfolio level?
Thanks for your input. I also update currency conversions in live trading once a day thus I think I will run the strategy profiling on historical tick data on daily fx rate conversion updates as well. Technology wise it is not hard to implement tick based updates, in fact that would be the easiest solution to implement. The issue is with performance degradation in terms of tick throughput/second. Any rate update on 10-20 cross currencies would cost several tens-hundreds of microseconds/tick which explodes when running hundreds of millions of data points.
Jul
25
comment How to calculate return rates with negative prices?
@aiguru, I was not talking about an alteration in supply. I am talking about some sort of "load-balancer". You supply it with constant amount x (constant over some defined period) and it balances out short term variations in demand y by outputting x -> y where the balance exits the circuit rather than overloading the grid.
Jul
25
comment How to calculate return rates with negative prices?
@aiguru, interesting. Thanks for that illustration. It is just I thought we live in 2013 and power plants can easily use technology to reduce the produced energy directed to the grid, in fact that is something every household appliance can handle: A variable input of power but a converter that can variably reduce the consumed power depending on settings. Why is that not available on a grand scale?
Jul
24
comment Black--Scholes hedging argument
good to share our knowledge on such board because I appreciate to read about the more rigorous approaches as I am not a mathematician by heart. Cheers ;-)
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.