Portfolio Backtesting

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Backtesting can be thought of as a short-hand way of seeking to working out whether some sort of forecasting approach might work in the future without actually having to wait for the future to arrive. In essence we develop algorithms that identify what results our models would have generated had we been running them at different points in time in the past, and we work out how well they would have subsequently performed. It is particularly important to be aware of the scope for ‘look-back bias’ in any such exercises. Backtesting can be applied to many different types of model in quantitative finance, including risk models and return forecasting models.




1.       Introduction

2.       Backtesting of risk models

3.       In-sample versus out-of-sample backtesting

4.       Testing backtest quality statistically





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