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Mark,
If you come accross that paper, please post. I've looked for it on the sites listed below to no avail. Many of the headlines from the papers on eris and gloramundi are how you can model "fat tail" events and quantify their impact. I've always worried about this, and at least have a starting point for further learning. Thanks.
Kind Regards,
Garyquanttrader714 <quanttrader714@xxxxxxxxx> wrote:
Speaking of Schachter, there's an interesting paper on capitalallocation based on Value at Risk that he was project advisor tofloating 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 fewarticles by Bary Schachter (Caxton Corp) on Stress Testing. Hiscomment below really struck me, and is essentially what you and Fredhave 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 whenconstructing stress scenarios in response to rapidly changingconditions, velocity is no substitute for perspicacity. Stress testingdemands a serious commitment of the right kind of resources, andbecause of this need we may see that firms begin to outsource stresstest construction.> > For those not familiar, I found www.gloriamundi.org to be a goodresource. www.erisk.com also carries a lot of Schachter'swritings. 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 myoverallsand 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'spost> 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 abad> 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
clearlyis > > time consuming regardless of whether one uses your methodology or > > another. The question is, is it worth it ? I think the answeris > > 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 isreconciling > > real> > > time results with expected results to see if the system is still> > > performing acceptably. And that's more difficult in practicethan> > > 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 mentionedin > > 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 youinsight> > > 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. Butthe > > 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 programI> > > 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@xxxx] > > > > 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 strongbiases. > > > 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 modelselection. > > > > > > > > > > > > > > > > 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 verydifficult> 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 probablynot > > work> > > well again.> > > > > > > > > > > > > > > > Howard> > > > > > > > > > > > > > > > -----Original Message-----> > > > From: Gary A. Serkhoshian [mailto:serkhoshian777@xxxx] > > > > 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 ifwe > > have> > > some idea that the near future will be bearish. This is not> wholly > > a> > > dream. For example, there are strong seasonalities in the USfour> > > 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 cyclesyou'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 moneywhile > > 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 ofequity> > > 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 notdo> > > 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 thingsthat> > > differentiate up moves from down moves that require the need for> > > asymmetry of signals.> > > > > > > > > > > > > > > > Thanks for the post, as this subject is scratching where Iitch> 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 bulland> > > bear years> > > > that actually occur. when we weight bull, bear and sideways > > markets> > > equally,> > > > are we matching their proportions in real life? what timeframe> > > 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 ifwe > > have> > > some idea that the near future will be bearish. This is not> wholly > > a> > > dream. For example, there are strong seasonalities in the USfour> > > year presidential cycle.> > > > > > > > > > > > > > > > Two – we design two systems, one for bullish periods, the> other> > > for> > > bearish periods, and include failsafe mechanisms in both. Thenwe> > > trade both systems and let the system that works make moneywhile > > 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@xxxx] > > > > 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 myhead> > > 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 bulland> > > bear years> > > > that actually occur. when we weight bull, bear and sideways > > markets> > > equally,> > > > are we matching their proportions in real life? what timeframe> > > 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 ifwe > > have> > > some idea that the near future will be bearish. This is not> wholly > > a> > > dream. For example, there are strong seasonalities in the USfour> > > year presidential cycle.> > > > > > > > > > > > > > > > Two – we design two systems, one for bullish periods, the> other> > > for> > > bearish periods, and include failsafe mechanisms in both. Thenwe> > > trade both systems and let the system that works make moneywhile > > 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@xxxx] > > > > 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 myhead> > > 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:> > > <A
href="">http://groups.yahoo.com/group/amibroker/files/groupfaq.html > > > > > > > > Your use of Yahoo! Groups is subject to the Yahoo! Terms of> > > Service. > > > > > > > > ---------------------------------> > > > > > > > > > > > Do you Yahoo!?> > > > Protect your identity with Yahoo! Mail AddressGuard > > > > > > > > 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/)> > > >
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href="">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. > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > Yahoo! Groups SponsorADVERTISEMENT> > > > > > > > Send BUG REPORTS to bugs@xxxx> > > > Send SUGGESTIONS to suggest@xxxx> > > > -----------------------------------------> > > > Post AmiQuote-related messages
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