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Backtesting: Difference between revisions
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You know the story about the [[frog and the scorpion]], right? | You know the story about the [[frog and the scorpion]], right? | ||
So these randy [[salespeople]] needed something their [[client]]s could take back to their risk committees to demonstrate the rigorous financial analysis that had gone into their product design. The lightbulb moment was the invention of [[backtesting]]. There may be a total lack of data from the future, but there’s a shit-ton of the stuff from the past. Your [[Bloomberg]] terminal is your friend. All you needed was ninja Excel skills — every blighter has those — and you could compare how your fabulous strategy would have done had it been running in, say, the five years leading up to the present. Gregariously, you could | So these randy [[salespeople]] needed something their [[client]]s could take back to their risk committees to demonstrate the rigorous financial analysis that had gone into their product design. The lightbulb moment was the invention of [[backtesting]]. There may be a total lack of data from the future, but there’s a shit-ton of the stuff from the past. Your [[Bloomberg]] terminal is your friend. All you needed was ninja Excel skills — every blighter has those — and you could compare how your fabulous strategy would have done had it been running in, say, the five years leading up to the present. Gregariously, you could extend the backtesting period over a known period of [[market shock]], to illustrate how the strategy would have performed in a challenging market. | ||
And how would it perform? SPECTACULARLY. | And how would it perform? SPECTACULARLY. Whatever the weather. Had the [[mark]]s not been so credulous, you’d think they'd start to twig. Well, they worked it out eventually. The hard way. | ||
Thanks to the “chart” function in [[Microsoft Excel]] could render these illustrations in multicoloured, three-dimensional boxes, graphs, Gantt charts and fishbone analyses. It was brilliant. In every case the strategy outperformed [[beta]] and any other indicator in the market that the salesperson cared to represent. But the restaurant booking was in twenty minutes, so the client had seen all he needed to see. | Thanks to the “chart” function in [[Microsoft Excel]] could render these illustrations in multicoloured, three-dimensional boxes, graphs, Gantt charts and fishbone analyses. It was brilliant. In every case the strategy outperformed [[beta]] and any other indicator in the market that the salesperson cared to represent. But the restaurant booking was in twenty minutes, so the client had seen all he needed to see. | ||