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Speaking of Schachter, there's an interesting paper on capital
allocation based on Value at Risk that he was project advisor to
floating around in cyberspace somewhere.
--- In amibroker@xxxxxxxxxxxxxxx, "Gary A. Serkhoshian"
<serkhoshian777@xxxx> wrote:
>
> Mark,
>
> Thanks for pointing me in the right direction re Kovner and Caxton.
It wasn't easy to find info on Caxton, but did find quite a few
articles by Bary Schachter (Caxton Corp) on Stress Testing. His
comment below really struck me, and is essentially what you and Fred
have alluded to.
>
> http://www.erisk.com/LearningCenter/Jigsaw/market_schacter.asp
>
> Stress Testing
> Barry Schachter of Caxton Corporation and Gloria Mundi
>
> Technology is making it easy to construct bad stress tests.
Off-the-shelf risk management software comes with (relatively)
easy-to-use graphical user interfaces for tweaking rates and prices.
While it's a boon to have the ability to respond quickly when
constructing stress scenarios in response to rapidly changing
conditions, velocity is no substitute for perspicacity. Stress testing
demands a serious commitment of the right kind of resources, and
because of this need we may see that firms begin to outsource stress
test construction.
>
> For those not familiar, I found www.gloriamundi.org to be a good
resource. www.erisk.com also carries a lot of Schachter's
writings.
I've attached one article I found helpful by Schachter entitled
"Stress Testing for Fun and Profit".
>
> Mark, thanks for the patience, and I guess I'll go find my
overalls
and try again to get my arms around your criteria. The more I learn,
the more I realize there is still a lot I don't know.
>
> Kind Regards,
>
> Gary
>
>
>
> quanttrader714 <quanttrader714@xxxx> wrote:
> For the robustness stuff I posted and many other methodologies, I'd
> agree. But with all due respect to Gary, what made me want to
> respond was that if one didn't already know the info in Howard's
post
> and if one has little if any experience with MCS there are lots of
> pitfalls, especially with trying to bridge the gap between expected
> and actual realtime results. And trying to do simulations without
> being aware of them and ways to mitigate gives poor results and a
bad
> name to a perfectly valid and useful process.
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <fctonetti@xxxx> wrote:
> > Mark,
> >
> > Personally I don't think it's overly complicated, but it clearly
is
> > time consuming regardless of whether one uses your methodology or
> > another. The question is, is it worth it ? I think the answer
is
> > self-evident.
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "quanttrader714"
> > <quanttrader714@xxxx> wrote:
> > > Not to be a naysayer, but... I agree with Howard in principle,
> > > however, the devil's in the details. My view: the OOS I'm
> concerned
> > > with are actual trades. I personally consider existing data in
> > sample
> > > so applying what Howard suggested in this context is
reconciling
> > real
> > > time results with expected results to see if the system is still
> > > performing acceptably. And that's more difficult in practice
than
> > > developing robustness criteria and finding robust systems. IMO
> the
> > > results from criteria 3-5 are sufficient to use as expected
> results
> > if
> > > done keeping the cautions I posted in 4 & 5 in mind and applying
> an
> > > appropriate adjustment to the simulations as I also mentioned
in
> > that
> > > post because, as Howard said, OOS results are almost always less
> > > profitable. Then there are several Statistical Process Control
> > (SPC)
> > > techniques that, given criteria 3-5 results, will give you
insight
> > > into whether or not the system's out of control. Or, given *a
> lot*
> > of
> > > experience, one could even eyeball it. But it certainly ain't
> > simple.
> > >
> > > Several have commented here and privately that all this seems
> > awfully
> > > complicated. So instead of another Edison quote, let me suggest
> > > looking at (find w/google) some of Caxton's research (Bruce
> Kovner,
> > > first Market Wizards book, started by borrowing $3,000 and now
> #111
> > on
> > > Forbes 400 list of wealthiest Americans).
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Gary A. Serkhoshian"
> > > <serkhoshian777@xxxx> wrote:
> > > > Thanks Howard. Makes sense, and seems simple to implement.
> With
> > > Tomasz adding MCS into AmiBroker, life will only get sweeter : )
> > > >
> > > > Kind Regards,
> > > > Gary
> > > >
> > > > Howard Bandy <howardbandy@xxxx> wrote:
> > > >
> > > > Hi Gary –
> > > >
> > > >
> > > >
> > > > I was thinking of looking at the recent trades in the out of
> > sample
> > > period. We can get an idea of what the possible distribution of
> > > various metrics are by looking at the in sample results. But
the
> > out
> > > of sample results are (almost) always less profitable, have a
> lower
> > > ratio of wins to losses, etc than the in sample results. One
> > > technique I use is to run a quick and dirty monte carlo program
I
> > > wrote in Basic that gives the likelihood of various metrics
–
> > > such as
> > > the proportion of winning versus losing trades. If the out of
> > sample
> > > results start falling in the area of the distribution that is
> > > "unlikely", then I have a warning that the system may be
> > > broken.
> > > >
> > > >
> > > >
> > > > Howard
> > > >
> > > >
> > > >
> > > > -----Original Message-----
> > > > From: Gary A. Serkhoshian [mailto:serkhoshian777@x...]
> > > > Sent: Sunday, November 09, 2003 11:33 AM
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > Subject: RE: [amibroker] On Robustness, Post #1 : TO HOWARD
> > > >
> > > >
> > > >
> > > > Howard,
> > > >
> > > >
> > > >
> > > > Thanks for the detailed response. Helpful as always.
> > > >
> > > >
> > > >
> > > > Regarding your comment:
> > > >
> > > >
> > > >
> > > > Other techniques could be comparison of various metrics of
> recent
> > > trades with the probabilities that those results come from a
> system
> > > that is healthy or broken.
> > > >
> > > >
> > > >
> > > > Can we come to this conclusion by looking at frequency
> > > distributions of the metrics in question during the IS period?
> > > >
> > > >
> > > >
> > > > Thanks again,
> > > >
> > > > Gary
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > Howard Bandy <howardbandy@xxxx> wrote:
> > > >
> > > > Hi Gary –
> > > >
> > > >
> > > >
> > > > One -- Yes, the presidential election cycle has strong
biases.
> > > This year, year 3, is traditionally an up year. I mentioned the
> > > presidential cycle as an example to ward off the flames that
> might
> > > come from suggesting a crystal ball approach to model
selection.
> > > >
> > > >
> > > >
> > > > Two -- I have done quite a bit of research into use of
> analysis
> > of
> > > the equity curve as a feedback mechanism to help determine the
> > health
> > > of a system. Other techniques could be comparison of various
> > metrics
> > > of recent trades with the probabilities that those results come
> > from a
> > > system that is healthy or broken.
> > > >
> > > >
> > > >
> > > > Three -- As I have mentioned in posts to this board and to
> > > HolyGrailSM, I believe several things are true of markets and
> > systems.
> > > Not everyone on this list agrees with me on these points, so
> > > you'll
> > > read some other opinions..
> > > >
> > > > Entries and exits need not be symmetric. In the equity
> > markets,
> > > drops are much steeper in slope than rises, so the parameters
> used
> > to
> > > recognize them in the same number of bars are different.
> > > > A good system need not trade all, or even a large portion,
of
> > > tradables well.
> > > > Markets change dramatically over time. It is very
difficult
> to
> > > design a system that trades profitably over a long time period,
> > > particularly when the market characteristics change within that
> > > period.
> > > > Systems that once worked well, then fail, will probably
not
> > work
> > > well again.
> > > >
> > > >
> > > >
> > > > Howard
> > > >
> > > >
> > > >
> > > > -----Original Message-----
> > > > From: Gary A. Serkhoshian [mailto:serkhoshian777@x...]
> > > > Sent: Wednesday, November 05, 2003 9:15 PM
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > Subject: RE: [amibroker] On Robustness, Post #1 : TO HOWARD
> > > >
> > > >
> > > >
> > > > Howard,
> > > >
> > > >
> > > >
> > > > A few questions regarding your post to Dave
> > > >
> > > >
> > > >
> > > > < One – we design two systems, one for bullish periods,
the
> > > other
> > > for bearish periods. Then we look into our crystal ball and use
> the
> > > system with the upward bias if we have some idea that the near
> > future
> > > will be bullish, and use the system with the downward bias if
we
> > have
> > > some idea that the near future will be bearish. This is not
> wholly
> > a
> > > dream. For example, there are strong seasonalities in the US
four
> > > year presidential cycle. >
> > > >
> > > >
> > > >
> > > > Regarding the 4-year cycle, are you specifically referring to
> > year 3
> > > (the year that is coming to an end) ? I've read year 3 since
> WWII
> > has
> > > been profitable to the tune of 15% on avg. Any other cycles
you'd
> > > suggest to follow?
> > > >
> > > >
> > > >
> > > > < Two – we design two systems, one for bullish periods,
the
> > > other
> > > for bearish periods, and include failsafe mechanisms in both.
> Then
> > we
> > > trade both systems and let the system that works make money
while
> > the
> > > system that doesn't work recognizes that it doesn't work and
> > > stays flat. >
> > > >
> > > >
> > > >
> > > > Which failsafe mechanisms do you prefer? I've been looking at
> a
> > DD
> > > "floor" or perhaps a factor of MaxDD to turn off the system. I
> > > believe Dimitris has suggested a downslope in the 100MA of
equity
> > > curve which makes sense, too.
> > > >
> > > >
> > > >
> > > > < Three – we design a system that is profitable in both
> bull and
> > > bear periods. I think this is the hardest to do, since the
> markets
> > > act so differently that it requires additional parameters to be
> able
> > > to recognize the additional patterns. In my experience, systems
> > > designed to do well in both bullish and bearish periods do not
do
> > > exceptionally well in either period >
> > > >
> > > >
> > > >
> > > > What you're describing is essentially that buys and shorts can
> not
> > > be symmetrical. Is that right? What are the primary things
that
> > > differentiate up moves from down moves that require the need for
> > > asymmetry of signals.
> > > >
> > > >
> > > >
> > > > Thanks for the post, as this subject is scratching where I
itch
> in
> > > my eduction of system development and optmization.
> > > >
> > > >
> > > >
> > > > Kind Regards,
> > > >
> > > > Gary
> > > >
> > > >
> > > >
> > > > Howard Bandy <howardbandy@xxxx> wrote:
> > > >
> > > > Hi Dave –
> > > >
> > > >
> > > >
> > > > Good posting. I'd like to comment on your last paragraph.
> > > >
> > > >
> > > >
> > > > - if one system does better in bull years and another in bear,
> the
> > > one that
> > > > does better in reality will depend on the proportion of bull
and
> > > bear years
> > > > that actually occur. when we weight bull, bear and sideways
> > markets
> > > equally,
> > > > are we matching their proportions in real life? what time
frame
> > > would we
> > > > want to base that judgment on?
> > > >
> > > > It seems there are three approaches to take.
> > > >
> > > >
> > > >
> > > > One – we design two systems, one for bullish periods, the
> other
> > > for
> > > bearish periods. Then we look into our crystal ball and use the
> > > system with the upward bias if we have some idea that the near
> > future
> > > will be bullish, and use the system with the downward bias if
we
> > have
> > > some idea that the near future will be bearish. This is not
> wholly
> > a
> > > dream. For example, there are strong seasonalities in the US
four
> > > year presidential cycle.
> > > >
> > > >
> > > >
> > > > Two – we design two systems, one for bullish periods, the
> other
> > > for
> > > bearish periods, and include failsafe mechanisms in both. Then
we
> > > trade both systems and let the system that works make money
while
> > the
> > > system that doesn't work recognizes that it doesn't work and
> > > stays flat.
> > > >
> > > >
> > > >
> > > > Three – we design a system that is profitable in both bull
> and
> > > bear
> > > periods. I think this is the hardest to do, since the markets
> act
> > so
> > > differently that it requires additional parameters to be able to
> > > recognize the additional patterns. In my experience, systems
> > designed
> > > to do well in both bullish and bearish periods do not do
> > exceptionally
> > > well in either period.
> > > >
> > > >
> > > >
> > > > Howard
> > > >
> > > >
> > > >
> > > > -----Original Message-----
> > > > From: Dave Merrill [mailto:dmerrill@x...]
> > > > Sent: Monday, November 03, 2003 7:06 AM
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > Subject: RE: [amibroker] On Robustness, Post #1
> > > >
> > > >
> > > >
> > > > some robustness issues that have been rattling around in my
head
> > > over the
> > > > weekend...
> > > >
> > > > <<<SNIP>>>
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > Send BUG REPORTS to bugs@xxxx
> > > > Send SUGGESTIONS to suggest@xxxx
> > > > -----------------------------------------
> > > > Post AmiQuote-related messages ONLY to: amiq
> uote@xxxxxxxxxxxxxxx
> > > > (Web page: http://groups.yahoo.com/group/amiquote/messages/)
> > > > --------------------------------------------
> > > > Check group FAQ at:
> > > http://groups.yahoo.com/group/amibroker/files/groupfaq.html
> > > >
> > > > Your use of Yahoo! Groups is subject to the Yahoo! Terms of
> > > Service.
> > > >
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > Howard Bandy <howardbandy@xxxx> wrote:
> > > >
> > > > Hi Dave –
> > > >
> > > >
> > > >
> > > > Good posting. I'd like to comment on your last paragraph.
> > > >
> > > >
> > > >
> > > > - if one system does better in bull years and another in bear,
> the
> > > one that
> > > > does better in reality will depend on the proportion of bull
and
> > > bear years
> > > > that actually occur. when we weight bull, bear and sideways
> > markets
> > > equally,
> > > > are we matching their proportions in real life? what time
frame
> > > would we
> > > > want to base that judgment on?
> > > >
> > > > It seems there are three approaches to take.
> > > >
> > > >
> > > >
> > > > One – we design two systems, one for bullish periods, the
> other
> > > for
> > > bearish periods. Then we look into our crystal ball and use the
> > > system with the upward bias if we have some idea that the near
> > future
> > > will be bullish, and use the system with the downward bias if
we
> > have
> > > some idea that the near future will be bearish. This is not
> wholly
> > a
> > > dream. For example, there are strong seasonalities in the US
four
> > > year presidential cycle.
> > > >
> > > >
> > > >
> > > > Two – we design two systems, one for bullish periods, the
> other
> > > for
> > > bearish periods, and include failsafe mechanisms in both. Then
we
> > > trade both systems and let the system that works make money
while
> > the
> > > system that doesn't work recognizes that it doesn't work and
> > > stays flat.
> > > >
> > > >
> > > >
> > > > Three – we design a system that is profitable in both bull
> and
> > > bear
> > > periods. I think this is the hardest to do, since the markets
> act
> > so
> > > differently that it requires additional parameters to be able to
> > > recognize the additional patterns. In my experience, systems
> > designed
> > > to do well in both bullish and bearish periods do not do
> > exceptionally
> > > well in either period.
> > > >
> > > >
> > > >
> > > > Howard
> > > >
> > > >
> > > >
> > > > -----Original Message-----
> > > > From: Dave Merrill [mailto:dmerrill@x...]
> > > > Sent: Monday, November 03, 2003 7:06 AM
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > Subject: RE: [amibroker] On Robustness, Post #1
> > > >
> > > >
> > > >
> > > > some robustness issues that have been rattling around in my
head
> > > over the
> > > > weekend...
> > > >
> > > > <<<SNIP>>>
> > > >
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > Send BUG REPORTS to bugs@xxxx
> > > > Send SUGGESTIONS to suggest@xxxx
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